Ask the Adviser: How do I shop for the best rates on my cash? - Rodgers & Associates

Ask the Adviser: How do I shop for the best rates on my cash?

Today’s interest rates are higher than we have seen for quite some time. Thank inflation, which has led the Federal Reserve to raise the federal funds rate multiple times in the past year. The effective rate is now 3.78%. (That’s up from 0.08% in February, according to St. Louis Federal Economic Data). This signif­icant increase is starting to show up in the interest rates adver­tised for cash.

Inter­ested in cashing in without committing to a long-term investment? There are plenty of options available.

Certificate of Deposit (CD): If you’re willing to tie up your cash in the short term, a CD can earn you a better rate. Banks and credit unions are adver­tising rates for CDs all the time. Start with your current bank and give them a call to ask for their best rate. Shop around at other local banks and credit unions, comparing CD rates for terms that suit your needs. You can quickly shop for the best rates from national financial insti­tu­tions and evaluate them against local bank and credit union rates using the website Bankrate.

High-Yield Savings Account: If you want to access your cash a bit more easily, a high-yield savings account might be more up your alley. First, check to see what your current financial insti­tution is paying you on the savings you have with them. Give your bank or credit union a call and find out the best rate they can offer you—and if there are any fees to get that rate. Then go to Bankrate and search for the best deals available for your zip code. Most, if not all, of the offers will be from national insti­tu­tions or insti­tu­tions you have never heard of. If you are comfortable going the online route, choose an insti­tution you know and trust. Some online high-yield savings accounts may require you to connect to your current insti­tution to move the money back and forth.

I Bonds: These are Treasury bonds that offer attractive rates because they are designed to protect from inflation. The rate on Series I bonds today is 6.89%. However, these bonds cannot be cashed in until at least 12 months. If you cash in during the first five years, you lose the last three months of interest. But there are purchasing limits for I bonds: one Social Security number (or one employer identi­fi­cation number) may only buy up to $10,000 in electronic I bonds and up to $5,000 in paper I bonds. The paper bonds can only be bought with an IRS tax refund. You can find the latest rates by going to Treasury­Direct.

In Summary: When shopping for interest rates, be sure to check if there are any fees and compare similar length maturities when applicable (compare 12-month CDs against other 12-month CDs). Use only financial insti­tu­tions you know and trust. Finally, in addition to the websites mentioned above, NerdWallet is another option when comparing rates.