Interest rates are still supported by inflation, which is still obstinate as ever. In an attempt to reduce inflation, the Federal Reserve hiked interest rates 11 times in 2022 and 2023. In response to the gradual increase in inflation in 2024, the Fed has paused interest rate changes at its last five meetings.
Due to the increased cost of borrowing, the ensuing high-interest rates have forced borrowers to make larger monthly payments. However, savers are now able to take advantage of significantly higher yields thanks to the higher rates. Annual percentage yields (APYs) on the best certificates of deposit and savings accounts have surpassed inflation since 2023.
Thankfully, there are numerous ways to save money that can take advantage of higher yields. But since they’re not all made equal, it’s a good idea to understand how each one functions to choose the one that best suits your needs. These are the top spots to put your savings at the moment.
One of these options might be the best option for you right now if you have money to save:
You can open a particular kind of deposit account with a bank or credit union for a set rate of return over a predetermined period of time called a certificate of deposit (or CD). In exchange for your commitment to keep the money locked in the account for the duration of the CD, which can be anywhere from one month to five years or more, CDs offer higher yields than traditional savings accounts.
For certain account holders, that is where the problem lies. You risk losing out on possible profits or paying an early withdrawal penalty if you take money out of your account before it matures.
No-penalty CDs allow you to access your savings without incurring penalties if you think you might need to, but they usually yield less than traditional CDs. As an alternative, you could use a CD ladder approach. In this scenario, you would open multiple CD accounts with various terms to have more frequent access to your money without paying penalties.
If you want to lock in a high yield and anticipate interest rate reductions, CDs are a great option. The Federal Reserve has signaled that it will reduce the federal funds rate several times in 2024. Rate-watchers, however, generally agree that high-interest rates are postponing any cuts until later in the year.
High-yield savings accounts (HYSAs) are federally insured deposit accounts that provide higher yields than conventional savings accounts, much like certificates of deposit (CDs). The Federal Deposit Insurance Corporation (FDIC) reports that the average return on traditional savings accounts is a pitiful 0.46%. In contrast, a large number of the top high-yield savings accounts for April offer yields ranging from 4.35% to 6%. Your money’s value may be protected against inflation by saving in a top-earning, high-yield savings account, especially since the Bureau of Labor Statistics reported that the rate of inflation in March was 3.5% year over year.
High-yield savings accounts, in contrast to CDs, are very liquid, allowing you to take money out of the account whenever you want without incurring early withdrawal fees. However, before opening an account, make sure to review the policies of your bank or credit union. Some may only allow six withdrawals and transfers each month.
An HYSA might make sense if you want to earn a high yield and have the freedom to access your money in case of an emergency. But bear in mind that the interest rate on high-yield savings accounts is variable and subject to change at any time.
Another option for saving money that typically offers a higher yield than a traditional savings account is a money market account (MMA). The advantages of checking and savings accounts are combined in these accounts. Their limited check writing and debit card transactions aside, they offer a secure, interest-bearing place to stash your cash.
MMA accounts are frequently used for a specific purpose, like a home maintenance fund, and are federally insured up to $250,000 per account, per depositor. In this scenario, there’s a chance your money will grow in value, but you still have the option to pay for property taxes or contractor services with a check or debit card.
All of the savings options that have been covered up to this point are $250,000 per account federally insured. The widely known as T-bills, or U.S. Treasury bills, are an option if you want to save even more money.
T-bills are short-term bonds with terms ranging from four weeks to one year that are backed by the US Treasury Department. These bills are short-term debt obligations that are typically sold in $1,000 denominations, but TreasuryDirect.gov is currently offering them in $100 denominations. T-bill rates are currently 5.00% on average. 52-week T-bills yield 4.91%, while four-week T-bills yield 5.28% as of April 19, 2024. You are entitled to the fixed interest rate when the T-bill matures.
If you want government backing for your funds that are more than the FDIC will allow, you might want to look into T-bills. These bills can be bought and sold through an investment bank or broker, or they can be bought and sold via the TreasuryDirect website with relative ease.
Think about your savings schedule and whether you might need access to your money before putting it in any of the above-mentioned options. A high-yield savings account or money market account will be more accommodating if you require the ability to withdraw money than a certificate of deposit (CD) or tender note (T-bill), as the latter options yield the highest interest upon the maturity of the funds.
On the other hand, a short- or long-term CD or T-bill may provide you with the rate assurance you seek if you want to lock in a fixed rate right away. Recall that your CD or T-bill may yield less than the market if interest rates rise. It goes without saying that, if interest rates decline, you will be paid more interest at your locked rate.
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