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Not long ago cash was trash. With rates rising, however, cash is now king. Today there are a number of different cash account types that pay an excellent yield. Here are seven of the best and secure options to invest your cash.
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Best Place to Save Money and Earn Interest
1. High Yield Savings Account (HYSA)
The most popular option, high yield savings accounts today are paying over 5% APY. These accounts typically don’t charge a monthly fee and are FDIC-insured (or NCUA-insured if it’s with a credit union). Savings accounts are convenient, and easy to use and your money is always available for immediate withdrawal.
Here are two of our favorite HYSA options:
- CloudBank 24/7 HYSA: 5.26% APY, $1 minimum opening balance, FDIC-insured
- CIT Bank Savings Connect: 4.65% APY, $100 minimum opening balance, FDIC-insured
You can check out our complete list of the best savings accounts for more options.
2. High-Yield Checking Accounts
Yes, it’s true. Some banks will pay you interest on your money in your checking account. Some banks require you to live in a certain area or belong to certain organizations (this is particularly true of credit unions). In contrast, some national banks offer high-yield checking, which means you can have an account there regardless of what part of the U.S. you reside. You can see a regularly updated list of checking account promotions here.
There are a few things you should know before diving into a high-yield checking account. Most of these accounts have a “balance cap” at $10,000, $20,000, or $25,000. This means that if you’re looking to stash $100,000, you’re only going get a great rate on a certain dollar amount and anything above that amount earns a lower rate.
In addition to a balance cap, many high-yield checking accounts require a certain number of debit card purchases each month. Some might require bill pay, electronic statements, or direct deposit. It is important to research what these requirements are before signing up for the account. You can find a list of some of the best high interest checking accounts here.
3. High-Yield Money Market Accounts
I am a huge supporter of high-yield money market accounts because many have fewer restrictions: no minimums, no monthly fees, no balance caps, and the ability to nickname your accounts. Here are a few of the highest yielding money market accounts we can find:
- Ponce Bank MMA: 5.28% APY, $1 minimum opening balance, FDIC-insured
- OptimumBank MMA: 5.26% APY, $1 minimum opening balance, FDIC-insured
- Discover Bank MMA: 4.20% APY for balances under $100,000, $2,500 minimum opening balance, FDIC-insured
If you are looking for an easy place to stash a lot of cash, then high-yield money market account might be a great fit for you. Keep in mind that the FDIC limit is $250,000 per depositor, per insured bank. So you don’t want to have more than $250,000 in any one account. (If you have this problem, then I recommend that you talk to a CERTIFIED FINANCIAL PLANNER™ because you might benefit from more advanced financial planning. You can find one on: www.letsmakeaplan.org).
4. Cash Management Account
Many online brokers, namely robo-advisors, are offering a cash account for you to keep your money at a good rate–either for emergencies or to hold until you’re ready to invest. One of our favorites right now is Wealthfront Cash, which gives you a 5.00% APY and has no fees whatsoever. It only requires $1 to start, and you can make unlimited free transfers as often as you’d like.
But the reason it’s on THIS list is that you can invest your Wealthfront Cash immediately with just a few taps on the app (or a few clicks on the website). The cash is already in the Wealthfront platform, so you can buy into a Wealthfront fund within minutes. And if you’re not ready to do that, you can just leave it in the account and let it earn interest.
Also, Wealthfront just enabled checking features within your cash account. So the cash account you already have will act like a checking – giving you a debit card, the ability to direct deposit your paycheck (and get it up to two days early), and pay bills online.
You’ll also be able to get cash out at over 19,000 ATMs, pay others using apps like Venmo or PayPal, and deposit paper checks using the mobile app. Wealthfront is moving closer to becoming an all-in-one money manager, which is a real game-changer.
Read more: Wealthfront Cash Account full review
5. Certificates of Deposit
Normally one wouldn’t consider a CD for parking cash. If you need the money before the CD matures, you pay a penalty when withdrawing your money. No-penalty CDs, as the name suggest, don’t come with early withdrawal penalties. After a seven or 30-day waiting period, depending on the CD, you can take your money out at any time penalty free. As such, no-penalty CDs are a good option for an emergency fund or other short-term savings.
T-Bills are U.S. government bonds that mature in one year or less. Maturities range from four weeks to 52 weeks. They currently offer yields as high or higher than most bank accounts. In addition, you won’t pay state or local income tax on the interest.
You can buy T-bills at most brokers or directly from the government at TreasuryDirect.com. Keep in mind that you can always sell T-bills before the mature to access your money. If rates have gone up since you purchased the T-bills, however, they could sell for less than you paid for them.
As an alternative to buying individual T-Bills, you could invest in an ETF that holds T-bills and other short-term U.S. government debt. Two options are iShares iBonds Treasury ETFs and the Schwab short-term T-bill etf, ticker TBIL.
7. Money Market Funds
Money market funds may sound similar to money market accounts, but there are some big differences. A money market account typically comes from an FDIC-insured bank or NCUA-insured credit union. In contrast, brokers typically offer money market funds, which are NOT FDIC or NCUA insured. Still, these funds are a safe place to park your cash.
Money Market Funds invest in short-term fixed income assets. A fund can invest primarily in U.S. government bonds, commercial paper, or both. Because these investments are short-term and investment grade, money market funds are considered to be a safe place for cash. You can check out a list of money market funds here.
How to Choose Where to Invest Your Cash
Keep three questions in mind when it comes to holding cash.
First, is the account liquid or must you tie up your money for a period of time (as with a CD or I bond)? In fact, one reason we didn’t include I bonds in the list is that you can’t access your money for at least 12 months. And you pay a penalty equal to 3-months of interest if you cash in the bond within five years.
Second, what’s the best interest rate you can find for the type of account you choose? Generally, the more liquid an account, the lower the rate.
And finally, is your money safe? FDIC insured accounts and government bonds are considered the safest, but often come with lower rates in exchange for the safety. Still, safety can’t be underestimated.