If you’ve successfully managed to set up your household budget such that you have some extra money saved up for an emergency or perhaps a big purchase that you intend to make soon, you could be missing out if you don’t have that cash in the right place.
As Barron’s points out, the Federal Reserve has raised short term interest rates seven times in just the last couple of years.
“For the first time in a long time, cash or cash equivalents are paying you something,” Scott Siegel, a Morgan Stanley wealth advisor in New York, told the publication.
That means that if your cash is languishing in a checking account that is paying you a paltry amount of interest on your balance, you are essentially giving money away.
Have some savings? Here’s where your money will work for you
Mike Mayo, a banking stock analyst, told Barron’s that there are many options yielding more than 2%, while maintaining ready access to your money, including short-term U.S. Treasury bills.
Put simply, $10,000 invested for just one year can bring in more than $200 in interest. You can buy Treasury bills directly from the U.S. Treasury or at Schwab, Vanguard, or Fidelity without a fee.
Short term government money funds
Also recommended because their income is exempt from state and local taxes are short term government money funds. The specific example given is Vanguard Federal Money Market (VMFXX), which is currently yielding about 2.4%, but there are others available, as well.
Bank savings accounts
Finally, an option that hasn’t been very attractive for a while is coming back around again: Good old bank savings accounts.
For many years after the financial crisis of the late 2000s, interest rates on these accounts were virtually non-existent. Now, you can earn as much as 2.4% on your money and still have easy access to your cash in case you need it for something.
A couple of percentage points in interest rates might not seem like a big deal, but with the power of compounding interest, a few minutes spent today moving your extra cash into one of these places could very well mean a lot more money in your pocket down the road.
Set aside some time to see if this makes sense for you — your future self will thank you!