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    7 Places to Put Your Cash Now

    With inflation spiking and the Fed raising interest rates, it's time to rethink your savings strategy

    Illustrations of money with digitized shadows Illustration: Consumer Reports, iStock

    Inflation isn’t just making everything you buy more expensive. It’s also taking a huge bite out of your savings. 

    While the cost of living is climbing at an annual rate of 8.5 percent—the biggest monthly increase in close to 40 years—most savings rates are still well below 1 percent. That means your cash is rapidly losing value. So it’s time to develop a new strategy for where you keep your money. 

    The Federal Reserve is hiking interest rates more rapidly to slow inflation, most recently with a 0.75 percentage point increase. Banks have started to raise their own deposit rates, but they often move slowly and the increases tend to be small. The savings account rate recently has averaged about 0.13 percent.

    None of this means you should pull your money out of savings accounts. No matter what rate you’re getting, it’s important to have cash on hand in case the unexpected happens.

    More on Saving & Investing

    “You should not be trying to use your savings accounts to maximize returns but to cover costs in an emergency and to help you ride out stock market downturns without panicking,” says Manisha Thakor, a certified financial planner and financial educator at MoneyZen in Portland, Ore.

    That said, it makes sense to get the biggest bang for your buck, especially if rates head even higher in the coming months, as many forecasters predict. 

    Large national online banks, such as Ally and Synchrony, are currently paying interest rates of 2.00 percent or more on new online savings accounts, while American Express National Bank and others are offering 2.50 percent or more on one-year certificates of deposit, according to Deposit Accounts, a website that tracks depository banking products.

    Some smaller players are competitive as well. Bask Bank, the internet division of Texas Capital Bank, is offering a savings account with a 2.20 annual percentage yield (the rate plus the effect of compounding interest), with no minimum balance or monthly service charge. (Initial deposits must be made within 60 days or the account may be closed; outgoing wire transfers incur a $35 fee.)

    As for CDs, Rising Bank, the online division of Midwest BankCentre in Missouri, is paying a 3.10 percent annual percentage yield on a 12-month CD, with a minimum deposit of $1,000. (There are penalties for early withdrawal.)

    If you’re thinking more long-term about your savings, here are four strategies to consider. Bear in mind that there’s nothing to stop you from using more than one of them, depending on your goals.

    You Want Safety and Maximum Interest on Funds You Access Regularly

    Online savings accounts are among the safest savings vehicles, with federal insurance covering up to $250,000 in deposits per holder, whether through a bank or a credit union. (A joint account with two holders is insured for up to $500,000.)

    You can find the rates offered for these high-paying accounts on websites such as Deposit Accounts and Bankrate. (For both websites, scroll below the top listings, which are paid placements.) Check the minimum deposit, fees, and features, such as ATM access and check writing. And note the limitations, such as the number of free monthly withdrawals.

    You can also review the account’s rate history on Deposit Accounts (click on the details box). If the account has been around for several years, there’s less likelihood that the current APY is a teaser rate that will drop later, says Ken Tumin, founder and editor of Deposit Accounts.

    Money market accounts offer yields similar to savings accounts but with some additional benefits and restrictions. Offered by banks and credit unions, they’re insured like savings accounts, up to $250,000 per individual holder. Institutions are able to provide higher rates on these accounts by investing your money in secure, short-term Treasury debt.

    If you can stash a significant amount in a money market account, you may benefit from more rate stability than in an online savings account, Tumin says. That’s because some money market accounts offer higher rate tiers for balances above a certain amount—such as $25,000—and are less likely to change rates at those higher tiers later.

    Make sure the money market account has the features you need. As with online savings accounts, some banks may limit withdrawals or check writing. For example, Vio Bank Cornerstone Money Market Savings Account doesn’t offer check writing or an ATM/debit card.

    At Deposit Accounts, check customer reviews for consumer experiences opening, maintaining, and closing accounts. Also note the financial health of the bank, which Deposit Accounts judges using a variety of well-accepted financial yardsticks. While your savings are insured and the percentage of banks with low ratings is tiny, avoiding D- or F-rated institutions could save you from hassles if you have to get your money in the event of a default.

    You Want High Returns and Convenience in Exchange for Some Risk

    Money market funds are a good option as a secondary savings account or to hold a portion of your emergency money. They’re offered by mutual funds and investment companies.

    The funds invest in debt: super-safe, short-term Treasury bills, plus short-term municipal and corporate debt (also known as “commercial paper”). While convenient to use if you also have a brokerage account, unlike savings and money market accounts, they’re not insured.

    Still, there’s a potential benefit: Money market funds typically respond quickly to changes in interest rates, as do savings accounts.

    The trade-off is that although these funds are relatively safe, you’re taking on an incremental amount of risk overinvesting in high-yield savings accounts, says Eric Bronnenkant, head of tax at Betterment, an online investment company in New York City.

    For greater safety, you can consider a fund that focuses on U.S. government-backed issues rather than those that invest in corporate debt, says Allan Roth, chief executive of Wealth Logic, a financial planning firm in Colorado Springs, Colo. 

    For example, the Vanguard Treasury Money Market fund, recently yielding 2.13 percent, mainly holds Treasury bills. That rate is likely to increase, Roth says. As a bonus, income from Treasury securities is exempt from state and local income tax.

    Money market funds typically have minimum investments of $500 or more, but some have none. (Most Vanguard funds have a $3,000 minimum.) There’s generally no limit to how much can be deposited or withdrawn after that initial deposit or how often you can make transactions. You can write checks, arrange for direct deposit, and, in some cases, use ATMs.

    Check the net expense ratio, which should be well below 0.25 percent. (Many funds temporarily waived expenses [PDF] during the pandemic, but fees have edged back up.)

    Fidelity Money Market, for instance, charges 0.18 percent, or $1.80 per $1,000 invested. Compare expenses among money funds using the free Fund Analyzer sponsored by FINRA, the self-governing body of the investment industry.

    You'll Do Anything for the Highest Insured Yield

    High-yield-reward checking accounts offer relatively high interest—currently as much as 5.00 percent APY—and are federally insured for up to $250,000. But the community banks and credit unions that offer them make account holders jump through hoops. While initial deposits and minimum balances are either nonexistent or very low, you typically must make six to 12 debit-card transactions per month, arrange for at least one direct deposit monthly, and sign up for electronic statements. There may be other rules, too.

    With these accounts, you’ll get the top rate on high-yield checking up to a certain balance; above that limit, the interest drops sharply. Many such accounts, also called “rewards checking,” limit their high rates to balances of $10,000 or less.

    Consumers Credit Union of Illinois’ Free Rewards Checking, for instance, has a current APY of 5.00 percent on the first $10,000 in savings and 0.20 percent to 0.1 percent after that. You also have to join the credit union (for a one-time $5 fee) and agree to receive all-electronic documents. And each month you must make at least 12 debit-card transactions totaling $100 or more; have $500 or more in direct deposits, mobile check deposits, or ACH credits; and spend $1,000 or more with a CCU Visa card.

    Tumin says some of his website readers report having a dozen or so of these accounts at a time, each account holding just under the maximum to get the top rate.

    You Don’t Need to Touch Your Savings for Several Months or a Year

    Treasury bills of a year’s duration were recently offering a 3.6 percent rate. They carry an implicit insurance: They’re debt backed by the full faith and credit of the U.S. government.

    The minimum purchase is $100. You buy them at a discount and get the full price when it matures. For example, $200 worth of 52-week bills will cost about $193.

    You can buy these bills through a broker, which may charge a fee. You can also buy Treasurys from the federal government, with no fee, at Check the latest auction rates here; to determine the interest you’ll get, take the “Price per $100” in the last column and subtract it from $100.

    As noted earlier, the interest from Treasury securities is exempt from state and local tax. If you live in a state with both, Treasurys are an attractive option for your cash.

    The possible downside? Because you buy Treasurys at a discount, selling them before they’re due may mean you won’t get all the yield you expected.

    Certificates of deposit, which let you lock up your cash at a given rate for a few months to a few years, are also federally insured. But they’re looking a lot less attractive right now. 

    “The risk is you are locking up your money at what may turn out to be low rates,” Bronnenkant says. One-year online CDs recently offered average rates of 2.67 percent.

    If you need to make an early withdrawal, you’ll typically lose a few months of interest. But there are some exceptions, Tumin says. A few banks offer CDs with no early withdrawal penalties

    Still, given the other options available, you may be better off with a more flexible savings account. 

    I Bonds may not be a handy source of cash, but they’re a great option for those who can afford to lock up their money for at least a year. These government savings bonds pay inflation-adjusted interest rates, most recently an annual 9.62 percent, or a guaranteed 4.81 percent over the next six months. (If you make a withdrawal within five years, you lose three months of interest.)

    For more details, learn how I Bonds can help you fight inflation.

    Photo of CR Money editor, Penny Wang.

    Penelope Wang

    I cover everything from retirement planning to taxes to college saving. My goal is to help people improve their finances, so they have less stress and more freedom. What I enjoy: walks through the city, time with family, and reading mysteries, though I rarely guess who did it. Follow me on Twitter (@PennyWriter).