What to Do with Your Cash
While the title of this blog post may bring to mind stacks of dollar bills, physical bills are not all we consider “cash” in the world of investing. Cash and “cash like instruments'' can take several different forms which we will cover below. The main qualifier for these instruments are their low risk and “guaranteed” rate of return.
Depending on your comfort level with investing, it might feel tempting to squirrel away all of your money into a savings account, but that isn’t always the best strategy for conserving and growing your wealth. In fact, when it comes to inflation, cash (both the stacks of bills, and the kind in your bank account) can be the worst way to store your money. And in recent history when the interest rates for most savings accounts dropped down to 0.1% those benjamin’s aren’t doing much for you in the bank’s “safe” keeping.
With the current higher interest rate environment, you should be able to earn at least 3% on your cash. If you aren’t making that right now, you might want to consider one of these options:
High Yield Savings Account
What: FDIC insured bank account
Why: Paying 3-4% interest
How: Ally Bank, Marcus by Goldman Sachs, Betterment Cash Reserve
Certificate of Deposit
What: Lock in interest rates for a period of time (from 3 months to 5 years)
Why: 3-5% interest for the period
How: Most banks offer CD’s
Treasury Bills
What: US government treasury bills (4, 8, 13, 17, 26, and 52 week options)
Why: Paying 4-5%
How: Purchase direct from treasury.gov or through your brokerage/retirement account
Series I Bonds
What: Inflation adjusted government bonds
Why: Paying 6.89% for 6 months (interest rate changes every 6 months)
How: Purchase direct from treasury.gov
All of these options will be better than leaving the dollar bills under your mattress as inflation eats away at their purchasing power. Keep in mind that some require you to lock up that money for a period of time, so make sure to factor your future needs into your strategy.
