Current high-interest rates in the realm of 5.00% APY make now an opportune time to invest spare cash for a solid return. The Federal Reserve is likely to sustain these high rates until September, after which they might be subject to a decrease. This potential future decline has spurred interest in high-return investment accounts such as CDs, high-yield savings accounts, and money market accounts.
Choosing the advisable account or combination of accounts to invest in largely depends on your saving preferences and financial goals, says financial planning expert Christine D. Moriarty. By first identifying the purpose of your savings and establishing a savings timeline, you can ensure a streamlined financial plan better-suited to your needs.
CDs are relatively unaffected by changes to the Federal Reserve's benchmark interest rate, with offerings of up to 4.60% APY, despite three federal interest cuts last year. Though your money is less accessible during the term of a CD, the return rate is guaranteed for the entire duration.
High-yield savings accounts offer high flexibility with anytime access to saved money and APYs as high as CDs. Other conditions, like a minimum deposit, may apply to yield an account's highest APY. However, rates on high-yield savings accounts are not fixed and will adjust according to the Federal Reserve's rate.
Money market accounts are a hybrid of CDs and high-yield savings accounts, offering similar rates and flexibility and the additional option to write checks. Some money market accounts boast higher returns than savings accounts due to competition among high-yield savings accounts, with top rates up to 4.37% APY.
Money market accounts approached by credit unions and banks are distinct from money market funds or money market mutual funds broached by brokerages. Bank-offered money market accounts bear a significantly lower risk because they're federally insured, unlike investment-type accounts that can fluctuate.
Investment in multiple account types can be an ideal choice for some, according to Moriarty, as it allows diversification of benefits from each type of account. For instance, money intended for an emergency can be deposited in a savings account for immediate access, while the remainder could be locked into a 6-month CD.
Whether opting for a CD, a high-yield savings account, a money market account, or a mix of these options, it's crucial to understand the specific terms that come with each to maximize returns on your hard-earned extra cash.