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In recent months, 44% of Americans in households making $125,000 or more say they’ve put more cash aside to cover future expenses. That’s according to the Conference Board’s May Consumer Confidence report.
But are they investing it?
“Keeping money in cash forever isn’t a plan,” says Rebecca Palmer, a certified financial planner in Washington, D.C., and head of guidance for financial planning platform Fruitful.
“It’s actually postponing a plan,” she says.
More than a quarter (28.7%) of consumers expect stock prices to decline over the next 12 months, according to the Conference Board's July report. That’s a more optimistic number than April’s 47.2%, but still higher than the 23.7% who expected a drop in January.
“There’s definitely a feeling of fear in the markets right now,” Palmer says. “A lot of people are feeling this, [and] it’s OK.”
But she emphasizes that fear is a starting point, not a strategy.
Why are people nervous about the market?
Turbulence has contributed to people’s investing anxiety. According to some measures, the level of stock market volatility in April was at its highest point since 2020.
Today’s investors are also knee-deep in alarming headlines and social media doom, Palmer says.
“They just have a lot more overwhelm to deal with than prior generations did, even if it’s the same kind of market turbulence that happens,” she says.
But keeping money in a checking account, earning no interest (or in a pillowcase, you know who you are) can put you at a disadvantage.
“You’re losing money to inflation,” Palmer says.
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Where can you put your money?
If the stock market is making you uneasy, or you’re keeping money accessible for a nearer-term goal, here are a few places you can consider putting your cash to earn interest and stay ahead of rising consumer prices.
High-yield savings accounts
Potential interest rate: 4%+
High-yield savings accounts offer higher interest than savings accounts at traditional banks. Many banks offering these rates are online, and if they’re FDIC-insured, they offer the same protections for your money as brick-and-mortar banks.
“If you can get 4% on your savings, or even 3.8%, versus the point-nothing that one of the big brick-and-mortar banks are going to have, then take the better rate,” says Cindy Sforza, a CFP with Lucidity Wealth Advisors in Brea, California.
Bank certificates of deposit (CDs)
Potential interest rate: 4%+
A certificate of deposit (CD) is a short-term savings account that allows you to lock in an interest rate for a certain time period — i.e., six to 12 months, with some terms as long as five years.
The trade-off is that your money is also locked in; you’ll pay a penalty if you withdraw early.
When CD interest rates are higher than other savings accounts, this can be an easy way to earn some interest. But when CD interest rates match what you’ll find in other short-term places, it may not be worth committing, Sforza says.
“Frankly, CD rates today are pretty close to what you can get in a high-yield savings account anyway, and a CD is a time commitment,” Sforza says. “Just do your rate shopping, and see if it makes sense to tie it up in a CD.”
Your goals will determine your choice — if you need to keep the money accessible, a CD might not be your top pick.
Cash sweep accounts
Potential interest rate: 4.0%+
A cash sweep account is an option offered by brokerage or investment firms for the uninvested cash in your account. This could be money from deposits you’ve made, dividends you’ve received or uninvested proceeds from selling an investment. The firm automatically “sweeps” it into an interest-bearing option.
What happens to your cash depends on the firm’s sweep program. It might be transferred into a money market fund, put into interest-bearing deposit accounts at partner banks, or just held by the firm, which pays interest on it.
The return you earn can vary widely, but the yield may be lower than what you’d get from moving the money yourself into a high-yield savings account. Insurance coverage also depends on where the funds are held — your money may be FDIC insured at partner banks, while other options may fall under SIPC protections.
(Many brokerages offer cash sweep accounts. NerdWallet also offers a cash sweep account through a partnership with Atomic.)
Money market accounts
Potential interest rate: 3.5% - 4.4%
A money market account is a savings account that offers a higher interest rate than traditional savings accounts, along with limited check-writing and debit card access to your funds. Money market rates may not match the best high-yield savings accounts, but HYSAs typically don’t offer checks or debit cards.
“[Money market accounts] might give you a slightly lower rate on your money because it’s a little bit more accessible versus the savings account,” Sforza says.
Treasury bills
Potential interest rate: 3.8%+
Treasury bills, or T-bills, are government-backed investments with terms ranging from four weeks to one year. You can buy T-bills from a bank or brokerage, or invest directly through TreasuryDirect.gov.
“It’s not the greatest website in the world,” says John Bell, a CFP with Free State Financial Planning in Columbia, Maryland.
But if you link your bank account to the site, he says, you have the option to invest in your T-bill of choice — and to have your money automatically reinvested when that T-bill matures, if desired.
Another relatively new option available is a Treasury account, which is offered at some brokerage firms and does the work of buying T-bills for you, holding them to maturity, and then reinvesting the profits.
(NerdWallet also offers a Treasury account through a partnership with Atomic. Public, an online broker NerdWallet reviews, also offers a Treasury account.)
The advantage of Treasury bills, aside from their low risk and the fact that they’re government-secured, is that the interest you earn is state and local tax-free.
“So you’re getting a little bit more yield there too, especially if you’re in a high tax state,” Bell says.
Many brokers also offer a Treasury exchange-traded fund (ETF) or index fund that lets you invest in a basket of different Treasury products.
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Although the methods above will earn interest, they’re not the best solution for long-term savings and investing, Sforza says. If it’s money you’re not going to touch for at least five years, you’re probably better off investing it, she says.
“Yes, the market goes up and down, but that’s your long-term money,” she says. “That’s not the money you’re relying on tomorrow to pay your bills.”
If the idea of the stock market stresses you out, consider letting your portfolio do the work for you. Index funds, index ETFs and target-date retirement funds are an easy way to dip your toes in the investing waters, Sforza says.
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