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  • Where to park cash

    Where to park cash?

    It’s important to make the most out of your savings. There are many options available to earn at least a 4% yield on your money.

    Keep in mind that you should only use the following options for emergency savings and specific saving goals (e.g., a downpayment for a house). Everything else should be invested for the long term.

    Here are a few options available to you depending on your goals, tax situation, and desired yield:

    1. High yield savings account (HYSA)

    A savings account is a decent option to store your emergency funds/savings. Savings accounts are FDIC insured up to $250,000 (some might offer even more), so your money is protected.

    You should evaluate savings accounts based on:

    1. Yield
    2. Withdrawal limits (no limits is preferred)
    3. Minimum balance (ideally $0 to keep the rate)
    4. The size of the institution (bigger = less risk)
    5. Any fees (look for $0 fees)
    6. Required actions to earn the yield (e.g., direct deposit)

    Here are a few banks and their respective yields:

    • MyBankingDirect – 5.55% APY savings
    • Evergreen Bank – 5.25% high yield online savings
    • BMO Harris – 5.10% alto online savings
    • CIT Bank – 5.05% platinum savings
    • CIBC – 5.01% APY savings
    • Wealthfront – 5.00% APY cash account
    • Vanguard – 4.70% Cash Plus account
    • PNC – 4.65% high-yield savings (select areas)

    Take some time to research these banks using the criteria above. I personally used CIT Bank for my savings, but switched because of their poor user interface and login issues.

    The main benefit of using a high-yield savings account (HYSA) is the FDIC insurance, which might not be applicable to other options discussed further:

    2. Money Market Fund

    Big brokerages like Vanguard or Fidelity offer Money Market Funds (MMFs).

    Money Market Funds are mutual funds that maintain a stable share price of $1. These funds invest their assets in cash, U.S. government securities, and/or repurchase agreements.

    For example, Vanguard has 2 main ones:

    VMFXX – 5.27% yield

    The portfolio composition is:

    VUSXX – 5.28% yield with composition:

    VUSXX is a better option as of now because it has an identical yield, but most of the income will be exempt from state and local taxes since it holds T-bills (more on this later).

    Keep in mind these two funds are NOT FDIC insured. They are SIPC insured, so if anything happens to Vanguard or Fidelity, your money will be protected. However, it’s possible that the share price can go below $1. In 2008 and 2020, the Federal Reserve stepped in and provided liquidity options to prevent that from happening.

    It will take you about T+2 days to withdraw money from this fund. Both funds have over $70 billion in assets.

    Fidelity has SPAXX (4.97%) Money Market Fund, and Schwab has SNVXX (5.07%).

    3. T-Bills 

    Treasury bills (T-bills) are short-term debt instruments issued and backed by the U.S. Treasury. Treasury bills are issued for terms of 4, 8, 13, 17, 26, and 52 weeks.

    T-bills can be purchased from banks, brokers (like Fidelity), and directly from the Treasury through Treasury Direct.

    Current yields:

    • 4 weeks ~ 5.36%
    • 8 weeks ~ 5.38%
    • 13 weeks ~ 5.39%
    • 17 weeks ~ 5.4%
    • 26 weeks ~ 5.37%
    • 52 weeks ~ 5.15%

    T-bills are exempt from state and local taxes. These are as safe as savings accounts as they are backed by the Treasury. The only problem is that your money is locked in for that length.

    If you don’t want to buy Treasury bills directly from Treasury Direct or other brokers, there are ETFs like SGOV (5.27% yield) that only hold T-bills. However, they have expense ratios, so your yield will be a bit lower than buying directly.

    4. FRNs

    Floating Rate Notes (FRNs) are short-term investments that:

    • Mature in two years
    • Pay interest 4 times/year
    • Interest changes throughout the term, and is reflective of 3-months T-bills

    You can hold an FRN until it matures or sell it before it matures. 

    Overall, I personally suggest Money Market Funds or HYSAs. They are the easiest to understand and work with, but you have to decide which product makes the most sense for you.

    There are many options available, so please don’t use banks that pay 0-1% interest.

    See you next Saturday.

    MC, CPA

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