With bank savings accounts typically yielding 0.33%, it generally doesn’t make sense to stuff any of your money there.
Recall that you may want to keep a minimum of six-months spending in a cash account, in case you lose your job or have a medical emergency.
Probably the best place to stash cash now is in a money-market fund. For customers of Fidelity Investments, of which I’m one, you can get a 3.96% yield on a fund (Fidelity Government Cash Reserves) that invests only in Treasuries and has no minimum investment.
You can get a 4.15% yield in a fund (Fidelity Money Market Fund) that includes non-Treasuries and has no minimum. And you can get a 4.27% yield in a fund (Fidelity Money Market Fund Premium Class) that includes non-Treasuries and has a $100,000 investment minimum.
For money that you want to put into short-term investments but that you won’t need right away, Treasuries are usually a good option.
But given the possibility of a debt default by the Treasury between June and September if Congress doesn’t agree to raise the debt limit, you may want to stay away from Treasuries that mature in less than a year. One-year Treasuries recently yielded 4.74%.
CDs Are an Option
One alternative is brokered certificates of deposit, which are issued by a wide variety of banks, including the top ones. They are sold at brokerages such as Fidelity and Charles Schwab and are generally insured up to $250,000.
At Fidelity, you could recently get a nine-month JPMorgan Chase CD yielding 4.7%.
Ultra-short-term bond funds are another option. They generally invest in securities with maturities of less than a year to minimize price risk.
The prices of these funds do move, so they aren’t as safe as money-market funds. But the prices don’t move much, so they’re safer than funds with longer maturities.
Vanguard Ultra-Short Bond ETF (VUSB) , which keeps an average maturity of zero to two years, recently yielded 4.67%.
Morningstar Bestows Gold Rating on Fund
Morningstar gives the fund an automated rating of gold, its highest. “Vanguard Ultra-Short Bond ETF’s strong process and parent firm support” that rating, according to Morningstar’s automated analysis.
“The portfolio maintains a sizable cost advantage over competitors, priced within the cheapest fee quintile among peers.” The fund’s expense ratio is 0.1%.
VUSB “has maintained a significant overweight position in corporate bonds and an underweight in AA-rated bonds compared with category peers,” the analysis said.
Another possibility is high-yield savings accounts, which generally are insured up to $250,00. But the yields aren’t very attractive now. Goldman Sachs’ Marcus bank, where I have an account, recently offered a yield of 3.3%.
For me, keeping most of my cash in money-market accounts seems to make the most sense. But you have to consider your own goals to figure out what to do.
