Smart Ways To Invest Your Extra Cash

With inflation on the rise, it's important to rethink your savings strategy. While the cost of living is climbing, savings rates remain low. So, it's time to explore new options for where to keep your money.

There are several low-risk investment options to consider, including high-yield savings accounts, money market accounts, and government bonds. These options offer stability, liquidity, and diversification, allowing you to safely grow your money while still having access to it when needed.

Additionally, for those looking for longer-term investments, options such as long-term corporate bond funds, dividend stock funds, and real estate investment trusts (REITs) can provide attractive returns with manageable risk.

Ultimately, the best choice depends on your financial goals, risk tolerance, and time horizon.

High-yield savings accounts

The best high-yield savings accounts have annual percentage yields (APYs) that are about ten times higher than the national average rate of 0.43% to 0.57%. Many of the rates offered by the best high-yield savings accounts are around 4% to 5%.

• Barclays Tiered Savings Account: 4.50% APY for balances of $0 to <$250k, and 4.80% APY for balances of $250k+.
• SoFi Checking and Savings: 4.20% APY for those with direct deposits or $5,000+ in qualifying deposits every 30 days.
• CIT Bank Platinum Savings: 4.55% APY for balances of $5,000 or more.
• Openbank High Yield Savings: 5.00% APY for balances of $500 or more.
• UFB Portfolio Savings: 4.31% APY with no minimum balance required.
• American Express High Yield Savings Account: 4.00% APY with no minimum balance required.
• Capital One 360 Performance Savings: 3.90% APY with no minimum balance required.
• EverBank Performance Savings: 4.75% APY with no minimum balance required.

Money market accounts

• Vio Bank - 4.90% APY, $100 minimum deposit
• Quontic Bank - 4.75% APY, $100 minimum deposit
• CFG Community Bank - 4.65% APY, $1,000 minimum deposit
• UFB Direct - 4.31% APY, no minimum deposit
• EverBank - 4.30% APY, no minimum deposit
• Sallie Mae Bank - 4.20% APY, no minimum deposit

Treasury bills

T-bills are usually sold in denominations of $100, but some can reach a maximum denomination of $5 million in non-competitive bids. The US Treasury sells T-bills through auctions using a competitive and non-competitive bidding process. Investors can purchase T-bills in electronic form from TreasuryDirect, the platform of the US Treasury, or through a brokerage firm, which may charge a small fee. To buy T-bills from TreasuryDirect, you will need a Social Security number or taxpayer identification number, a US address, and checking or savings account numbers. After creating an account and logging in, you can select "Treasury bonds" as the security you wish to buy, along with the desired amount and maturity term. Following a review and confirmation of your purchase, you can submit your order. Your payment will typically be settled the next day, and at maturity, the yield will be deposited into your linked account.

T-bills offer several advantages, including a low minimum investment requirement of $100, ease of buying and selling in the secondary bond market, and exemption from state and local income taxes on interest income. However, there are also some disadvantages to consider. T-bills offer low returns compared to other debt instruments, and they do not provide periodic interest payments, which can inhibit cash flow for investors seeking steady income. Additionally, T-bills are subject to interest rate risk, meaning their rate could become less attractive in a rising-rate environment.

Overall, T-bills are a good option for investors seeking a safe and secure investment with a short-term maturity. They are ideal for those who want to park their money for a short period while earning a modest interest rate. However, it is important to consider the potential impact of interest rate and inflation risks on the value of your investment.

Certificates of deposit

When you open a CD, you agree to leave a certain amount of money deposited for a specific period, such as three months, six months, one year, or even up to ten years. In return, the bank agrees to pay a predetermined interest rate and guarantees the repayment of your principal at the end of the term. The longer the term, the higher the interest rate offered.

One of the downsides of CDs is that your money is locked into the investment, and withdrawing funds early usually incurs a penalty. Additionally, the fixed-rate nature of CDs can be a disadvantage if interest rates rise during the term, as you may miss out on higher returns. Inflation can also eat away at the value of money locked in at a fixed rate.

CDs can be purchased directly from banks, credit unions, and brokerages, with some brokerage firms and independent salespeople offering "brokered CDs". These individuals and entities, known as "deposit brokers", can sometimes negotiate higher interest rates by promising to bring a certain amount of deposits to the institution. It is important to thoroughly research the background of the issuer or deposit broker to ensure the CD is from a reputable institution.

CDs are a good option if you have cash that you won't need for a few years and want to save for a specific goal, such as a vacation, a new home, or a car. They are also suitable if you want a more conservative investment with lower risk and volatility than the stock and bond markets.

Government bonds

In the US, government-issued bonds are known as Treasuries, while in the UK they are called gilts. Government bonds are ideal for short-term investments as they are very safe and low-risk, with reliable income. The market for US government bonds is also highly liquid, so investors can sell and access their money easily.

There are different types of government bonds, depending on their maturity dates and the governments that issue them. For example, Treasury bills (or T-bills) mature in less than a year, while Treasury notes (T-notes) expire in one to ten years, and Treasury bonds (T-bonds) expire in more than ten years.

While government bonds are considered low-risk, there are still some potential pitfalls to be aware of, including interest rate risk, inflation risk, and currency risk. Interest rate risk refers to the potential that rising interest rates will cause the value of the bond to fall. Inflation risk means that if the inflation rate rises above the coupon rate of the bond, the investment will lose money in real terms. Currency risk applies if the government bond pays out in a currency that is different from the investor's reference currency, as fluctuating exchange rates may cause the value of the investment to drop.

Frequently asked questions