Have Extra Cash?

Patrick Cote |

BY: Katherine Hennessy, CFP®

Having extra cash on hand may be rare with the holidays around the corner and the rise in inflation.  However, if you do happen to have extra cash in a bank account earning a low interest rate, you may want to consider your options for capturing more yield (interest from an investment).  As you explore these options and your personal situation, it’s important to remember to keepa certain amount of money in your savings account for your emergency fund.  Your emergency fund should contain three to twelve months’ worth of your household expenses in cash in your bank account.  This emergency fund is there to tap into in the event of job loss, disability, etc. 

If your emergency fund is in place AND you have extra cash on hand, here are three options to capture more yield on your extra cash:    

  1. CDs - consider purchasing a CD in your brokerage account. A certificate of deposit is a fixed income investment that pays a set rate of interest over a specific time period. The rate of interest earned from a CD is typically higher than the interest you would earn in a savings account.  On average the five biggest banks paid 0.4% on consumer deposits in savings accounts and money-market accounts during the past quarter, according to S&P Global.  You’ll want to hold your CD until maturity, so you aren’t penalized. CD rates will fluctuate but on average the current CD rates are:
  • 3 month CD @ 4.25%
  • 6 month CD @ 4.65%
  • 9 month CD @ 4.75%
  • 12 month CD @ 4.80%
  1. Treasuries – consider a Treasury bond this holiday season. Treasuries, like CDs, are easy to purchase in your investment account and will provide more yield than you would receive in your bank savings account. My husband and I had a CD maturing and at the time Treasuries were yielding more than CDs, so we made the decision to buy a Treasury bond.  Treasury bonds on average are yielding:
  • 3 month @ 4.40%
  • 6 month @ 4.64%
  • 9 month @ 4.66%
  • 12 month @ 4.71%

As noted above the average yield on a CD is very close to the average yield for a Treasury bond.  Both need to be held until maturity to receive the full par value, plus any interest earned.

  1. Series I Savings Bonds – at this point last year we shared with our clients how to purchase Series I Savings Bonds “I Bonds” through the treasurydirect.gov website.  I Bonds are purchased through the US Treasury and pay the full inflation amount, but there is a limit of $10,000 per person per year that can be invested in I Bonds. If you cash in the I Bond in less than 5 years, you lose the last 3 months of interest.  I Bonds are an attractive investment due to the jump in inflation, as it can be difficult to find an investment that pays a risk-free rate of return of more than 7%.

While the above three options can be used individually in your investment portfolio, I like to look at them holistically and apply each a meaning.  Invest cash that you may need in 3 to 6 months in a CD or a Treasury Bond. Once the CD or Treasury Bond matures, you can then spend or reinvest the cash.  Invest your longer term cash in the I Bonds, as you can’t sell them for the first 12 months after purchase.  Whether you add all three options to your portfolio or just one, I know you’ll feel much better about the additional yield you receive on your extra cash.  Contact us if you’d like to learn more ways on how to get more yield on your cash.