Parking your cash in these investments is paying off: 3 ways to find the best place to hide

Published Wed, Apr 19 20232:43 PM EDT

These days, it pays to be idle – if you're talking about cash. With the Federal Reserve more than a year into its rate-tightening campaign, assets that investors previously slept on are now looking interesting. This means that as the yield on the six-month Treasury has popped over 5%, banks and other financial institutions are raising the rates on certificates of deposit and savings accounts to remain competitive. Apple, working with Goldman Sachs, entered the fray this week and launched a savings account with a 4.15% annual percentage yield. Even money market funds, where investors can park cash that's in their brokerage accounts, are paying attractive rates. The Crane 100 Money Fund Index has an annualized 7-day current yield of 4.63% as of April 18. Cash continues to pour into money market funds, reaching $5.28 trillion for the week ended April 12, according to the Investment Company Institute . With an array of places to earn yield, investors need to weigh a few factors before deciding where they ought to keep their cash. "I will tell you people are sleeping better at night because they are earning more money on savings accounts and CDs," said Dan Herron, certified public accountant and founder of Elemental Wealth Advisors. "There's something to be said for that." Liquidity goals Where you want to keep your cash depends on how quickly you'll need it. A ladder of short-term T-bills may do the trick if you're hoping to receive some interest on cash you won't need for a few months up to a year. Money market funds in your brokerage account can also give you an attractive interest rate while keeping easy access to your money. Otherwise, if you can go at least a year without tapping your cash, banks are generally boosting rates on certificates of deposit. Bread Financial offers an annual percentage yield of 5.05% for its 1-year CD. Meanwhile, SLM follows close behind with a yield of 4.8% on a CD with the same term. High-yielding savings accounts, meanwhile, give you easier access to your money – but you'll sacrifice some of your return. Bread Financial is also a standout in that space, offering an annual percentage yield of 4.5%. LendingClub follows with a yield of 4.25% . "When you're looking at a CD versus high-yield savings: Do you need access to liquidity and how soon? A lot of folks are saving and have something that could come up in the next six months to a year," Herron said. Rates Historically, investors have been rewarded with higher yields in exchange for tying up their money for an extended period in a CD. This time, with an inverted yield curve – short-term rates are now higher than long-term rates – there's less of a trade off for those who are comfortable with keeping their money in a short-term CD. Consider that a 12-month CD at Ally has an annual percentage yield of 4.5%, while an 18-month CD touts an APY of 4.8%. The rate goes down for the 3-year instrument, dropping to 4.25%. Some banks are boosting rates on their high-yield savings accounts, particularly as investors flock to safety. Discover, Marcus and Synchrony have all recently increased rates on their accounts, according to Stephens, a Little Rock, Arkansas-based financial services firm. Note that the rate paid to you on a high-yield savings account can change once you've opened it. Another consideration for investors: As rich as rates may be right now, they're not going to keep up with inflation over the long term. "They are losing some yield in the inflationary scheme of things, but they know their money is safe, and that outweighs a lot," said Herron. Savers socking money into a bank-issued CD or a high-yield savings account are protected by the Federal Deposit Insurance Corp ., which backs up to $250,000 per depositor, per insured bank for each account ownership category. Fees Cracking a certificate of deposit ahead of maturity comes at a cost to investors. In this case, you forfeit a specified period's worth of interest. Meanwhile, savings accounts may not hit you with penalties – but you could still face limitations on the number of withdrawals and transfers from these accounts. Money market funds also come with expenses. Be mindful of these costs versus the amount of yield you can get, as they eat away at your return. "Vet your choices," said Herron. "You're earning money; there's a give and take."