Money

The Best Places to Put Your Short-Term Cash

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My wife and I were recently discussing whether we want to move or stay in our house.

There are a lot of factors – especially financial ones – that go into that kind of decision. If we sell and then rent, our monthly costs will go up, so we crunched the numbers to figure out whether it would make sense.

If we sold the house, we could invest the cash from the sale in Treasurys or certificates of deposit (CDs) and generate enough income to offset the increase in costs.

Now, it may not stay that way forever. There is talk about the Fed cutting rates soon – though last year, it was thought to be a near certainty that rates would be reduced by now, so who knows when rates will actually fall?

And the Fed certainly shouldn’t be in any rush. Unemployment is still very low, and while inflation has dropped sharply from its highs, it’s still above the Fed’s 2% target.

As we all know, inflation stings. Paying more at the grocery store, at the pump and everywhere else is not fun.

There’s a silver lining, though. Inflation leads to higher interest rates, which is a good thing for savers.

Case in point: You can earn 5% or more right now on your short-term cash investments.

Rates were so low for so long that we often didn’t think about cash as an investment. We invested for the long term, and whatever cash we needed for the short term was sitting in a bank or money market account earning nothing.

But today, thanks to the highest rates we’ve seen in over 16 years, you can use your cash to help you achieve your short-term goals.

Let’s look at some of the best places to put cash right now.

The highest-yielding Treasury matures in one month and yields 5.51%. (Keep in mind that all of these yields are annualized.) You can earn the same amount on a note that matures in four months and just slightly less on two- and three-month notes. If you go out to one year, you can still earn 5.17%.

The highest yield I could find on a CD that matures in under one year is 5.35% for six months at Rising Bank.

At NexBank, a one-year CD will earn you 5.4%, which is a little more than the 5.17% you’d get from a one-year Treasury. But that comes with a $25,000 minimum deposit requirement. A smaller $2,500 minimum deposit at LendingClub will earn you 5.15%, slightly less than the yield on the one-year Treasury.

And remember, Treasurys are not taxed at the state or local level, so if you plan on holding the funds in a taxable account, a Treasury may be the better deal even if the rate on the CD is higher – especially if you live in a higher-tax state.

For long-term investors, I still strongly recommend dividend stocks. While 5% yields from Treasurys and CDs are attractive, dividend stocks come with unlimited upside, the potential for dividend growth and the ability to reinvest the dividend, which compounds your wealth.

But if you need your cash to be protected from risk and able to generate income, earning 5% or more from a risk-free Treasury or nearly risk-free CD is a great way to go about it.

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