Optimizing Cash Investments: Two Ways to Boost Returns While Maintaining Accessibility

Over the past few years, interest rates and market yields have risen significantly. Unfortunately, many banks and credit unions have not adjusted their checking and savings account rates to reflect these increases. 

We recognize the importance of keeping liquid cash for needs such as emergency funds or down payments, but you might find the returns on your current accounts disappointing. Fortunately, there are ways to earn higher interest on your cash while keeping it easily accessible. Here, we explore two options for investing your cash at a better rate of return, without sacrificing accessibility.

Money Market Funds

Money market funds are among the most stable investment options available, which can help balance the higher volatility of stock and bond investments in your portfolio. They are also highly liquid, allowing for easy buying and selling. Additionally, some money market fund investments offer interest payments that may be exempt from federal and, in some cases, state income taxes.

Many FIAI clients are acquainted with Fidelity Government Cash Reserves (FDRXX), which serves as the primary cash position in our managed accounts. Investing cash in this fund allows you to earn returns while maintaining full accessibility.

Consider the following illustration, assuming you have $50,000 in savings and interest compounds monthly.*

*Interest rates/yields are not guaranteed and will increase or decrease over time.

T-Bills

Savings rates have remained elevated this year due to the Federal Reserve's decision to keep rates unchanged. If you’re searching for a short-term option to store your savings and earn interest, you may have considered a high-yield savings account or a 1-year CD. While both are solid choices, another short-term investment worth exploring is Treasury bills.

T-bills have maturity dates of less than a year, and while generally, longer-term Treasuries pay higher yields, short-term Treasury yields are currently higher. As of Aug 26, 2024, the 3-month Treasury bill rate is 5.01% while the 30-year Treasury rate is 4.11%.

So, if you're looking for a virtually risk-free way to earn interest on your cash over a short period of time, investing in a T-bill could be a good choice.

Our team is here to support you in implementing these strategies and more. Feel free to reach out if you have any questions; we're just an email or phone call away.