Make the Most of Your Cash
Is your cash working for you or is it working for your bank?
In the past several years, investors have not needed to worry about what their cash was earning at a bank (or rather not earning). All rates were uniformly low and there was little reason to shop for higher rates. Now, though, the average CD rate is currently as high as 5% for a one-year term. The average rate for high yield savings accounts is between 3%-4%. Yet, when you take a survey of a national bank website, their rate for CDs with a one-year term is 3.75% and .04% for savings accounts. One credit union in our area offers CDs at 3% for a one-year term and 1.75% for high yield savings. This wide variety of returns available across various institutions highlights the importance of looking closely at what your cash is earning.
Given the rising interest rate environment, River Capital Advisors (RCA) believes it makes sense for clients to build a CD or conservative bond ladder to invest their emergency cash. There are several reasons that this is attractive for investors.
Better Yields: As Registered Investment Advisors, we have access to marketable CDs and conservative bonds. Marketable products often provide yields equal to or better than what you can obtain on your own. For example, we can purchase CDs, Treasury bonds, or government agency bonds with one-year terms yielding between 5.25% and 5.66%. Each of these investments are either guaranteed by the FDIC, the Federal government, or, in the case of agency bonds, have an implied government guarantee.
Convenience: Normally, if you were to buy the best CDs, Treasury bonds, and/or government agency bonds on your own, it might require opening multiple accounts at various institutions. At RCA, we can open a single brokerage account for you and implement the best cash management strategy in one account.
Flexibility: CDs we buy in the aftermarket can be sold prior to maturity, if needed. This provides you with flexibility not available with traditional CDs. Note that selling prior to maturity can result in a change of value, but there is no interest penalty as with traditional CDs.
We offer the above benefits of cash management to clients for a 0.5% management fee, which helps you to still realize a better yield. Whether you have us manage your emergency cash or you do it yourself, it is important to ensure you are receiving the best yield possible on cash reserves. Keep in mind that online banks may offer higher yields than your traditional bricks-and-mortar banks. If you are not receiving the best yields, your purchasing power is dropping rapidly as inflation is high. If we can help you make the most of your cash, please contact us.
Note: All rates of return are as of March 8, 2023. Actual rates of return will be different.