CDs, I-Bonds, and Money Markets Are A Waste Of Your Time.

People in my circle regularly pitch me the idea of a Certificate of Deposit (CD), Money Markets, and I-Bonds while asking, “What should I do with my cash reserves?”

Let’s start with the insanity of I-Bonds. Who among us has been unable to escape the myriad podcasts and blog posts about navigating the archaic TreasuryDirect website all so you can save $10,000? Yeah, that’s the individual limit.

Oh, you also have to stay in for at least 1 year, no less 5 years, unless you want to forfeit some of the interest.

All so you can make $700 a year?

What about the Certificate of Deposit? As a refresher, a CD is simply a term for a savings account that holds your money for a fixed period of time.

At the time of this writing, Goldman offers 5.05% APY on a 10-Month CD. Huntington will give you 5.18% APY on a 14-month CD.

Again, for 10 months or 14 months, your money is held hostage. Plus, plan on a penalty if you want it sooner.

And a Money Market? Similar but with the advantage of usually being able to withdraw your money whenever you want, just like a savings account.

Wintrust currently offers a “Max Safe” money market product yielding 4.00% but with a $50,000 minimum required to open.

$50,000.

Alternatively, High-yield savings accounts (HYSA) are yielding 4.00% to 4.5%, and are very likely to go higher with anticipated Federal Funds Rate increases yet to come.

What if rates go up, as I think they will? Your CD is locked in. Your High Yield Savings will adjust accordingly.

Right now I get 4.25% at Empower Personal Cash*. No minimum. FDIC insured up to $2 million. Empower does the structuring for you.

Side note; I also love Empower’s platform for keeping track of all my investments and assets. It offers an automated, daily snapshot of your cash flow and net worth.

I expect HYSA rates to move even higher if the Fed raises rates again in May (a consensus expected move). If you have been paying attention, rates are likely to stay higher for longer barring some major fallout in the economy; (which, no one should be wishing for) Fed Chairman Powell keeps saying so.

Liquidity is king.

Locking up your money for 6 to 12 months doesn’t make sense in my opinion, especially for a 75 bps spread, at best.

Inevitably you may need the money for an emergency or pre-planned purchase that comes into view sooner; think housing, car repairs, a weekend away, or unexpected emergencies.

Look at high-yield savings accounts if you are eager to find a place to park cash. And remember, even 4.25% isn’t an investment, only a good place to keep “dry powder” you have immediate access to.

Thanks for reading. Be good stewards of your earnings.

*If you use my link to sign up for Empower, we both get $20. Terms apply.