The Federal Reserve’s decision not to cut interest rates presents an opportunity for savers to earn higher yields on their deposits in federally insured accounts. In 2023, savers earned $315.4 billion in interest in deposit accounts, four times more than the previous year. The Fed’s rate-hike campaign has allowed savers to earn inflation-beating yields on their deposits, including bank savings accounts, certificates of deposit, and money market accounts. Treasury bills also offer competitive rates and low risk, making them an attractive option for savers looking to grow their savings.
High-yield savings accounts offer significantly higher interest rates compared to regular bank savings accounts, with some FDIC-insured online banks offering rates between 5% and 5.5%. By utilizing high-yield savings accounts, savers can earn more interest on their savings, helping to offset inflation. While rates may fluctuate, online high-yield savings accounts are expected to continue offering inflation-beating returns in the foreseeable future. These accounts provide a reliable way for savers to preserve the buying power of their money.
Money market deposit accounts and money market funds are alternative options for savers looking to earn competitive yields on their deposits. Money market deposit accounts are FDIC-insured bank products, while money market funds are investment products that generate returns by investing in low-risk debt instruments. Both options offer competitive rates, but money market funds are not FDIC-insured. Certificates of deposit (CDs) are another viable option for savers, allowing them to earn fixed interest rates over a specific period. Shopping around for CDs can help savers find the best rates available.
Investing in short-term Treasury bills and notes provides another opportunity for savers to earn competitive returns with minimal risk. Treasury securities are backed by the U.S. government, offering a safe investment option for savers. While the pace of the Federal Reserve’s quantitative tightening program may affect Treasury yields, short-term rates are more influenced by the central bank’s guidance on its benchmark rate. Treasury bills and notes provide savers with a way to earn solid returns, particularly in uncertain economic conditions.
Different durations of Treasury bills and notes offer varying yields, with longer-term options generally providing higher rates. Treasury notes with maturities between two and 10 years are sensitive to the Fed’s guidance on rates and may offer yields in the 4.5% to 5% range. When deciding between investing in a CD or a Treasury for the same duration, factors such as state taxes should be considered. Investing in Treasuries through a brokerage account offers a straightforward way for savers to access these investments and diversify their portfolios. Overall, utilizing various savings and investment options can help savers maximize the returns on their deposits and achieve their financial goals.
