Making Your Money Last

3 Ways to Earn 1%-2% in Short-Term Accounts

As the Federal Reserve continues to raise rates, your cash is getting a better return. But inflation is still nibbling away.

Thanks to the Fed, cash is no longer trash. Yields on short-term fixed-income accounts and securities–typically meaning those maturing in one year or less–have tracked the Fed's key rate and now are mostly between 1% and 2%. And note: If the Fed sticks with its rate-hike plan, yields on bank savings deposits, money market funds, U.S. Treasury bills and other short-term accounts could be 1.25 points higher by the end of 2019 than they are today.

The risks: There is little to no risk of principal loss on most short-term accounts. The main risk is inflation. The annualized U.S. inflation rate is about 2%, and until yields rise above that mark, cash in these accounts is losing purchasing power.

How to invest: One of the most popular short-term savings options is a money market deposit account at a bank. The average national yield is a mere 0.18%, but some banks recently paid as much as 1.8% on such accounts, says Greg McBride, chief financial analyst at Bankrate.com. So it pays to shop around. Federal deposit insurance is identical at every bank: It insures deposits up to $250,000 per depositor, per institution.

If you're willing to lock up your cash for one year, you can find banks paying as much as 2.2% on one-year certificates of deposit. But McBride says most savers are smart to stay liquid in money market accounts: "In a rising-rate environment, you want the ability to reinvest on a regular basis" at higher yields.

Banks' chief rivals for short-term savings are money market mutual funds. The average money fund yield was recently 1.3%, but some are paying significantly more. We like Vanguard Prime Money Market (symbol VMMXX, yield 1.8%). Though not federally insured, money funds are low-risk.

Finally, a super-safe option is U.S. Treasury bills. Six-month T-bills recently yielded 2%. You can buy them directly from Uncle Sam at www.treasurydirect.gov. Residents of high-income-tax states will appreciate that states don't tax U.S. Treasury interest income.

Most Popular

Planning to Sell Your Home in Retirement? Downsize Costs Along With Space
Budgeting

Planning to Sell Your Home in Retirement? Downsize Costs Along With Space

In this hot real estate market, consider the costs of buying and selling a house along with the expenses associated with your new digs.
November 13, 2020
What Biden Will Do: 24 Policy Plays to Expect From the Next Administration
Politics

What Biden Will Do: 24 Policy Plays to Expect From the Next Administration

The Kiplinger Letter forecasts President-Elect Joe Biden’s biggest priorities -- and the likelihood of progress on them.
November 19, 2020
The 13 Best Healthcare Stocks to Buy for 2021
Kiplinger's Investing Outlook

The 13 Best Healthcare Stocks to Buy for 2021

Most of the best healthcare stocks for 2021 will have some sort of ties to COVID, whether it's producing a vaccine or cure, or benefiting from the vir…
November 20, 2020

Recommended

Where to Invest in 2021
investing

Where to Invest in 2021

Kiplinger Executive Editor Anne Kates joins us to talk about her 2021 outlook for stocks, market sectors, and even some specific stocks. Also, hosts …
December 1, 2020
Stock Market Today 11/30/20: Dow Closes Out Best Month Since 1987
stocks

Stock Market Today 11/30/20: Dow Closes Out Best Month Since 1987

The major indices dipped Monday despite more positive COVID vaccine news, but the Dow nonetheless capped its best single-month performance in 33 years…
November 30, 2020
Surprise! Even Conservative Investors Could Profit on Bitcoin
investing

Surprise! Even Conservative Investors Could Profit on Bitcoin

Risk is misunderstood. Here’s one way to use a volatile asset – and Bitcoin is about as volatile as investments get – to help your portfolio.
November 30, 2020
Stock Market Today 11/27/20: Nasdaq Notches Another High as COVID's Spread Worsens
stocks

Stock Market Today 11/27/20: Nasdaq Notches Another High as COVID's Spread Worsens

An error in AstraZeneca's COVID-19 vaccine trial and persistent coronavirus troubles in the U.S. led investors to chase the old COVID trade Friday.
November 29, 2020