Most of the last decade, interest rates on savings accounts and Certificates of Deposit (CDs) have been virtually 0%. This was a shock initially in 2009, but now it feels like the norm. In the past few years, there have been 7 small but steady increases in the Fed Funds Rate, which has a strong connection with how much savings accounts/CDs will pay in interest. Resulting from these increases, high-yield saving accounts, and CDs are now worth re-considering for funds held for emergency purposes.
What Should You Do?
Savings/Emergency Reserve Funds – These funds should be kept in a 100% liquid account that can be accessed at any time. As of 6/25/18, there are several online savings accounts (American Express Bank, Marcus by Goldman Sachs, Ally, and Barclays) that are now returning between 1.65% and 1.75%. On $50,000 of savings, this equates to $825-$875/year of earnings you could be missing out on.
Short-Term Savings/Conservative Investors – CDs are returning as a more viable option for short-term and conservative investors. With several banks quoting 2-year CDs around 2.8%, $50,000 invested would return $1,400/year. We recommend looking at CDs online and comparing them to local banks to find the best rate.
How are your cash savings invested? It may be time to pick up some additional interest on that money.