by Andrew Petty

Investors have been forced to cope with an extremely low interest rate environment for an extended period of time, which creates challenges for those who need to maintain a level of liquidity in their portfolios to safeguard their investments, or are saving for near-term goals.

According to the Federal Deposit Insurance Corporation (FDIC), the average national savings deposit rate is 0.05%.1 At that rate, for every $1,000 you keep in a bank savings account, you will earn interest of 50 cents over the course of the year, leaving many in search of other investments to earn more than the average return from a savings account. Below are five alternative investment solutions for cash – each with their own pros and cons to review – that you may want to consider in this low interest rate environment.

Money market funds

Money market funds are generally as liquid as savings accounts, but often offer modestly higher yields. In many cases, you can even obtain ATM access to money in these accounts along with check writing privileges. These funds, which are provided by mutual fund companies and brokerage firms, do not carry FDIC protection like accounts from banks.

Certificates of Deposit (CDs)

CDs are similar to savings accounts and, when offered by banks, come with FDIC protection. However, they limit your liquidity. You lock up your money for a set period of time (anywhere from one month to several years). Rates are guaranteed and typically are higher than for savings accounts, although in today’s environment, CD yields are often only modestly more attractive. There are penalties for early withdrawals, so you need to be confident the money can be put away for a set period of time. If you can commit dollars over longer periods, you can build a “CD Ladder” by investing cash in a series of CDs with different maturities. As one CD matures and the money becomes available, you can invest it in a longer-term CD, typically earning a higher interest rate. Over time, funds periodically become available as CDs mature, creating some liquidity.

U.S. Treasury securities

Government-issued short-term obligations are available in varying maturities, typically paying more competitive rates than bank savings accounts. Terms range from one month to 30 years. For shorter-term money, you could look at instruments with maturities of anywhere from one month to two years. Principal is protected by the full faith and credit of the United States Treasury and is still considered the standard for reliability among debt issuers. If you need money before a Treasury security matures, it can be sold on the open market.

Short-term bonds

If you are setting cash aside for goals that are three-to-five years into the future, bonds that mature within that timeframe could be an option to consider. These tend to be less susceptible to the impact of interest rate changes than is the case with longer-term bonds, which eliminates some of the interest rate risk associated with owning bonds (but be aware that these bonds can lose value when interest rates in the broader market move higher). Issuers range from the U.S. Treasury to corporations to local and state governments. Local and state government bonds pay interest that may be free from federal, and sometimes state income tax. Short-term bond funds are an additional option.

Be consistent with your plan

Any cash management strategy you pursue needs to be consistent with your overall financial plan. Your financial advisor can help you explore your options and assess which alternatives to traditional bank savings accounts may work best for you.

1Federal Deposit Insurance Corporation, “Weekly National Rates and Rate Caps – Weekly Update,” for week of January 11, 2021.


Andrew R. Petty, CRPC®, APMA®, CLTC®, is a Private Wealth Advisor with Nona Wealth Advisors, a private wealth advisory practice of Ameriprise Financial Services, Inc. He offers fee-based financial planning and asset management strategies and has been in practice for 19 years. To contact him, please call 407-249-4006, visit his website at or stopover at his office at 10917 Dylan Loren Circle, Suite A, Orlando, FL 32825

Investment advisory products and services are made available through Ameriprise Financial Services, LLC, a registered investment adviser.

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