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Spotlight on Interest Rates

Spotlight on Interest Rates

This time last year, money market funds were earning near 0.01% and one-year CDs around 0.15%. While we’re hearing a lot about the volatility in stock and bond markets, I’ve been watching interest rates paid on cash quickly rising. Soon after the first of the year, we also started seeing CDs at the brokerage firms (Fidelity, Vanguard, and Schwab) start to become more attractive as well. 

AccountFeb 2022Mar 2022Apr 2022May 2022Jun 2022
1 Yr CD0.90%0.93%1.02%1.19%1.55%
3 Yr CD1.16%1.60%1.87%2.97%3.25%
5 Yr CD1.50%1.90%2.05%3.03%3.21%

Sources: VMFXX SEC Yield as of first of the month; Savings and CD rates: top 1% average from www.depositaccounts.com during the first half of the month. 

As we focus on changing what we can control, it may be time to review cash holdings to see if it’s time to move to another account or instrument. For emergency fund savings, review your savings account returns to see if they’re keeping up with the recent rate increases. If you are holding cash for your retirement “cash bucket”, consider a two-year or three-year CD ladder. 

If you have cash that you won’t need for at least a year, you can also purchase iBonds with the US Treasury. These bonds pay interest as a combination of a fixed interest rate and an inflation adjustment that changes every 6 months. The inflation adjustment for iBonds purchased now through October is 9.62% annualized. These bonds can be purchased here with a maximum purchase per year of $10,000 per owner. 

We update our recommendations on cash at your annual review, but sometimes, things change more quickly. If you have any questions on what to do with your cash now, don’t hesitate to schedule a call with me to review your current cash position and the location of your funds.