Jane Young: It’s time to put your money to work | Company


With annual inflation at 8.3% and interest rates on accounts at most major banks paying less than 1%, the value of your money is deteriorating rapidly.

It’s essential to keep some of your money out of the stock market in safer fixed income investments. Fortunately, with recent increases in the federal funds rate and more to come, fixed income options have become more attractive. Many lower-risk fixed income investments offer higher interest rates that will help you fight inflation.

It is essential to maintain cash reserves to cover short-term expenses. The best option for the money needed in the next few months may be in an account at your local bank. However, for fixed income money that is not needed immediately, money positioned for emergencies, and as a buffer against stock market fluctuations, consider higher paying options outside of your local bank.

For cash that you want to access quickly, consider a savings or money market account at an online bank. According to Bankrate.com, several FDIC-insured banks, including Capital One, Barclays and Citizen, currently offer annual rates of around 2% to 2.35%. The key is to only work with FDIC-insured banks – FDIC insurance covers accounts up to $250,000.

If you’re willing to lock in your money for six months to a year, your best option may be a certificate of deposit (CD). TD Ameritrade and Schwab currently offer six-month and one-year traded CDs with FDIC-insured banks that pay about 4% per year. Traded CDs are issued by various institutions. They are similar to CDs purchased directly from a bank, except that they trade on the open market. If you sell before maturity, the proceeds may be more or less than your capital.

Another option is to purchase a US Treasury bond or note. US Treasuries can be purchased at banks, brokerages or directly through www.treasurydirect.gov. Six-month Treasury bills are currently paying 3.85% and two-year Treasury bills are paying 3.96%. US Treasury bonds are safe investments backed by the US Treasury Department.

If you have a longer time horizon, consider I-bonds. I bonds are savings bonds issued by the US government that currently pay 9.62% per annum. The interest rate paid on I bonds is based on the consumer price index and resets every six months, in May and November. I bonds have a 30-year maturity, but you don’t have to hold them to maturity. You must hold them for 12 months and if you sell them after 12 months but before five years, you will lose the previous three months interest.

A person is limited to electronically purchasing a maximum of $10,000 in I Bonds in a calendar year and they can be purchased by opening an account at www.treasurydirect.gov. Interest from treasury bills, treasury bills, and I-bonds is subject to federal tax, but not state or local tax.

Jane Young is a certified fee-paying financial planner. She can be contacted at [email protected]


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