Rates may have hit their peak. How to get the biggest bang out of cash heading into 2024

Published Mon, Nov 27 20232:52 PM ESTUpdated Mon, Nov 27 20234:12 PM EST

If you're still settling for stingy yields on your idle cash, it's time for an overhaul. The Federal Reserve's latest rate-hiking cycle has been generous for savers who are stashing money in safe havens. Consider that the U.S. 3-month Treasury bill is yielding about 5.4%, while the Crane 100 Money Fund Index — that is, the 100 largest money market funds, per Crane Data — has a seven-day current yield of 5.2%. Not everyone is feeling equally generous. The national average annual percentage yield for savings accounts is 0.6%, according to Bankrate.com . That figure includes traditional brick-and-mortar banks that are offering low yields. "People are still kind of catching up and letting their extra funds languish in no-interest accounts," said Catherine Valega, a certified financial planner and founder of Green Bee Advisory in Winchester, Massachusetts. "It's important to keep sharing this idea to do something with your cash; these rates won't be here forever." Indeed, while the Federal Reserve's latest meeting minutes gave no indication of possible rate cuts, fed funds futures pricing suggests a chance that policymakers may start trimming rates next spring. As you go on the hunt for a safe place to sock away short-term cash, bear in mind three key factors: liquidity, time horizon and fees. Here's where to get the biggest bang for your idle cash as 2023 winds down: High-yield savings accounts and CDs Some online banks are offering generous rates on savings accounts, with the likes of Ally Financial , Sallie Mae and Synchrony Financial paying yields of more than 4%. At Bread Financial , savers can get an APY of 5.15%. There's a trade-off, of course. For starters, it may be harder to find an ATM for these institutions, and some banks may limit the number of withdrawals or transfers you can make each month. With certificates of deposit, investors must be willing to tie their money up for a set period or else forfeit some interest as a penalty. Online banks are also offering the most generous deals, with Sallie Mae recently hiking its APY on one-year CDs to 5.5% and raising the yield on a two-year CD to 5.25%. Keep an eye out for banks that pay richer rates on CDs with unusual time frames, such as 10-, 11- and 13-month instruments, said Jeremy Keil, CFP and financial advisor at Keil Financial Partners in New Berlin, Wisconsin. Synchrony, for example, pays a 5.5% yield on its 9-month CDs, while offering 5.3% on a 12-month CD. "If you truly don't need the money for a year, the best rates you'll find will be in a CD, and keep in mind that a lot of these banks have odd times where you might find the best rates," Keil said. With CDs and savings accounts, investors enjoy an extra measure of protection in the form of Federal Deposit Insurance Corp. coverage. The FDIC offers up to $250,000 in backing per depositor, for each FDIC-insured bank and ownership category. Short-term Treasurys Valega recommends that her clients carry 12 to 18 months of living expenses in cash. For those with more than $100,000 that they'd like to hold in cash-like investments, she's been buying T-bills. "I like the T-bills because they're state income tax-free," she said. "When the funds come due, we can have a conversation of where we will invest next." Clients can opt to deploy the money into the stock market if they have longer-term plans for the cash, or they can roll into another T-bill if they need time to decide. A one-year T-bill yields 5.27%, which could be fine for an investor with a short-term horizon for the cash — and the funds are backed by the full faith and credit of the U.S. government. There are also trade-offs for T-bills. For starters, if rates begin to decline, you'll have fewer options to reinvest proceeds once your T-bills mature. There's also the issue of what may happen if an investor needs to dump the holdings in a pinch before the maturity. "T-bills are marketable, but who is to say what the value is if you transact," said Charles Sachs, CFP and chief investment officer of Kaufman Rossin Wealth in Miami. "You might have lost a little money or gained a little money." Municipal money market funds Rather than tying up money in CDs or T-bills, Sachs prefers municipal money market funds for investors in the highest income tax brackets. These funds invest in short-term municipal securities and offer shareholders the benefit of interest that's free of federal income taxes. Vanguard's Municipal Money Market Fund (VMSXX) has a seven-day SEC yield of 3.53% and carries an expense ratio of 0.15%. Residents in high-tax locales may also want to consider state-specific municipal money market funds, which have the additional benefit of providing income that's free of state taxes. For instance, there's the Vanguard California Municipal Money Market Fund (VCTXX) and the Fidelity New York Municipal Money Market Fund (FSNXX) . "Keep it simple," said Sachs. "Money markets are there and working really well at this time." — CNBC's Michael Bloom contributed reporting.