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Financial Planning Tip May

Updated: Jul 19, 2022

Are there any good places to stash your cash right now? If you are looking for inflation-beating returns on your money, the honest answer is "no." However, there are a few decent choices out there. We believe the interest rates will improve in the very near future, so your cash should be able to earn you more as the year goes on. If you are looking to park some of your cash, here are a few alternatives (in order of attractiveness):

• High-yield savings accounts. We have highlighted these several times. The current annual interest rate on the American Express high-yield savings account is 0.60% or $6 per year on your $1,000 deposit. That's not a lot but it is much better than a bank savings account. Banks are paying next to nothing on deposits and we don't see this changing. However, we do think high-yield savings rates will rise this year. If you keep a significant amount of cash on hand, this is a very good choice. You can take your money out anytime and these accounts are FDIC insured.

• I Bonds. Series I Savings Bonds now have a 9.62% interest rate. Yes, that is fantastic, but before you get too excited, each individual is limited to $10,000 worth of these bonds in a calendar year. What's more, the interest rate will fall if inflation numbers come down. You also have to keep your money locked away in these bonds for five years if you want to reap the full interest payment. One year is the minimum length of time you can hold them. In addition, you can only buy them on the government website and the process is a bit clunky. If you're willing to play by all these rules, then you could (for now) earn $96 on your $1,000 investment. That said, they are not a place to stash money you might need in the next year.

• Money market funds. Money funds are not currently attractive with yields of around 0.03% or 30 cents on your $1,000 annual investment. However, rising interest rates should lift all money fund boats in time and they may be more attractive as the year goes on.

• CDs and bank savings accounts. Banks are paying almost nothing to depositors. Big banks like Chase and Bank of American currently pay 0.01% on savings accounts. That's 10 cents per year on your $1,000 deposit. CD rates are hardly better at 0.22% for a 1-year CD and 0.39% for a 5-year CD. In our view, it is not worth locking up your money for those very low rates of return.


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