While stocks have gotten hammered this year, elevating the return on your cash has gotten much easier, writes Jason Zweig in a piece for The Wall Street Journal. One logical choice would be money-market mutual funds, which have at last started to pay more income. Money-market funds yielded 2.64% at the end of September, according to their benchmark the Crane 100 index, up from 2.01% at the end of August and from a scant 0.02% in February. While a brokerage may corral you into a “cash sweep” account that pays much lower yields, you can opt instead to transfer your cash into money-market funds that will pay out much more, from top firms such as Fidelity, Charles Schwab, and Vanguard Group.
A second viable option for your cash are I-bonds (inflation-protected savings bonds). They’re currently offering a 9.62% annual yield for six months to investors who purchase them by October 31st (the yield will change in November, depending on inflation). I-bonds aren’t as flexible as cash, as you have to hold them for a year at minimum, you can’t buy more than $10,000 worth of electronic I-bonds in a year, and if you cash them out within 5 years, you’ll lose 3 months’ interest, the article explains.
But a third option for cash is offering solid returns: U.S. Treasury securities. 3-month Treasury yield has risen 3.25% and the 1-month Treasury yield is currently 2.6%, more than quadruple from where it was at the start of the year. Treasury bills are easy to purchase directly from the government’s dedicated website and there are no fees or commissions attached, and most brokerage firms who also sell them don’t charge fees for new issues. They’re generally risk-free, since they’re backed by the federal government and income on the bills is usually exempt from state and local taxes. And they tend to be overlooked by investors, because the government doesn’t really advertise them, and brokers don’t push them since they don’t make any money off them. With earnings of at least 3% in recent months, they offer a safe place to put cash during market volatility.
1-year to 7-year Treasurys are yielding more than the 10-year and over maturities, so it’s tempting to stick to short-term Treasurys. But interest rate changes could lessen that yield, so managers are suggesting that investors build a portfolio of both short-term and long-term Treasurys. Dave Culbertson, a former manager in the energy industry, told The Journal: “If interest rates go up, great…If they go down, at least I have some longer-term yields locked in.”