As inflation continues to persist, there is a growing possibility that higher interest rates will remain in place. This is actually good news for individuals looking to earn returns on their cash, as they now have the best opportunity to do so in the last 15 years. In fact, potential yields on investments such as certificates of deposit (CDs), Treasury bills, and Treasury Inflation-Protected Securities (TIPs) are currently well above the rate of inflation. According to Greg McBride, chief financial analyst at Bankrate, it is an ideal time to take advantage of these high rates and lock them in.
One of the investment options that savers may consider is the Series I savings bond, which is a U.S. government savings bond designed to offer inflation protection. It was recently announced by the Treasury Department that the Series I bond will have a rate of 4.28% for the next six months. While this rate is lower than its peak of 9.6%, it still provides an after-inflation return. The new interest rate includes a fixed-rate portion of 1.3%, which is a significant increase from previous levels.
It is important to note that many of these investments come with specific terms that require individuals to keep their money invested for a certain period of time. Early withdrawal may result in the loss of some funds. For those looking for more flexibility, online high-yield savings accounts offer an attractive alternative. These accounts provide easier access to cash and boast annual percentage yields of 5% or higher. Despite these advantages, a recent Bankrate survey revealed that 67% of Americans are earning interest rates below this threshold.
When deciding between locking in returns on cash investments or opting for a liquid savings account with a potentially higher rate, it is essential to consider your financial goals and timeline. Greg McBride emphasizes the importance of evaluating when you will need access to your money. Depending on your situation, it may make sense to distribute your funds across various accounts, including different types of CDs, Treasury notes, and online savings accounts. Ken Tumin suggests diversifying your deposits to hedge against uncertainty in interest rates.
Regardless of the size of your deposits, it is crucial to ensure that they are properly insured by either the Federal Deposit Insurance Corp. (FDIC) for bank deposits or the National Credit Union Administration (NCUA) for credit union deposits. This guarantees that your funds are protected in the event of a financial institution’s insolvency.
The current environment of higher interest rates provides cash savers with a unique opportunity to earn attractive returns on their investments. By carefully evaluating different options and considering individual financial goals, savers can maximize their returns while managing risks effectively.