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Whether you’re building an emergency fund or short-term savings, finding the best place for your money isn’t easy, especially as the Federal Reserve considers a pause in interest rate hikes.
The central bank on Wednesday unveiled another quarter-percentage-point hike in interest rates, with signals that it could be the last. But the move leaves many wondering when a possible rate cut might come. Although the timing is unclear, some experts predict rate cuts could begin by the end of 2023.
While investors are currently seeing higher interest rates for savings accounts, certificates of deposit and other products, these rates could follow the Fed’s future moves, with some products unlikely to see gains. higher rates this economic cycle.
But higher yields are still available for those “eager to shop around,” said Greg McBride, chief financial analyst at Bankrate. Here are four of the options to consider.
1. High Yield Savings Accounts
Despite rising interest rates, many savers do not take advantage of higher returns on savings accounts. Only 22% earn interest of 3% or more, according to a recent Bankrate survey.
While the average savings rate is still below 0.5%some of the top high-yield online savings accounts are paying more than 4%, since May 4.
Of course, there’s no guarantee for how long you’ll earn higher rates, and they can change quickly, said certified financial planner Amy Hubble, senior investment adviser at Radix Financial in Oklahoma City.
The upside in savings account yields is limited, especially if the Fed no longer raises rates.
Chief Financial Analyst at Bankrate
McBride adds, “The upside in savings account yields is limited, especially if the Fed no longer raises rates. They are much more likely to fall over the next six months than they are.
2. Certificates of deposit
If you’re looking to get a higher rate for longer, you may want to consider a Certificate of Deposit or CD ladder, which consists of distributing the money between several CDs with different terms.
Currently, the best one-year CDs pay more than 5%, according to Bankrate, but yields are lower over longer terms. “If you have your eye on a multi-year deadline, now is the time to lock it in,” McBride said.
However, CDs are generally less liquid than savings accounts because you may owe a penalty for cashing in before the end of the term.
3. Series I Bonds
The annual rate of Series I bonds fell to 4.3% through October, making the asset less attractive for those looking for short-term yield.
“I bonds have been the only game in town for two years,” said Jeremy Keil, CFP at Keil Financial Partners in Milwaukee. “And now they’re just part of the mix.”
There are two parts to I Bond interest rates: a fixed rate which remains the same after purchase, and a variable rate, which changes every six months according to inflation. I bonds may still attract long-term investors as the fixed rate jumped to 0.9% in May from 0.4% in November.
However, I bonds are less liquid than savings or CDs because you can’t access the funds for at least a year and you’ll owe a cash-out penalty within five years.
4. Money Market Funds
Short-term money market funds are another option to consider, according to Chris Mellone, CFP and partner at VLP Financial Advisors in Vienna, Virginia.
While money market funds can invest in different types of short-term, low-risk debt securities, Mellone currently focuses on those that contain Treasury bills with a maturity of 30 days or less. Customers can achieve higher returns while maintaining flexibility. “We’re really in a sideways environment and customers can collect almost 5% on a product like this,” he said.
We are really in a sideways environment and customers can collect nearly 5% and a product like this.
Partner at VLP Financial Advisors
And in an economic downturn, clients can quickly dip into the cash to buy other assets when the market goes down, “so you really get the best of both worlds,” he said.
Mellone said banks typically offer lower interest rates on products like savings accounts because they come under pressure from other parts of the business. “They’re going to drag their feet on raising rates higher because they can’t lend that much in this environment.”