The Fed funds rate, the target rate at which commercial banks borrow and lend their excess reserves overnight, is expected to decline by the end of 2024, but not by much and likely not until later in the year.
I shifted some of my own riskier and more volatile investments into cash so I could take advantage of the high interest rates that will continue into the new year. You can do the same.
Here are four short-term vehicles that can help you grow your money without the ups and downs of the stock market stressing you out.
Loan your money for a few months or even days to the US government
T-bills are often overlooked by newer investors because they don’t look like other interest-bearing accounts when you buy them and they have shorter terms.
They are sold at a discount, and the difference between the price you pay and the value you receive at redemption represents accrued interest.
Bonds are only subject to federal taxes, not state and local taxes, which keeps more of the investment return in your pocket.
As a newbie, I first got confused with Treasuries or Treasury bonds, so be clear about who you are buying from.
TreasuryDirect, the government’s website for buying its securities, looked so dated I thought I was on the wrong website. So I chose to buy promissory notes in individual retirement accounts and brokerage accounts. This helps me see them along with my other investments instead of logging into the tedious Treasury website.
Government Money Market Funds Keep your cash accessible
As we head into 2024, pay extra attention sovereign money market funds. You may already have your cash in one if you’ve opened a brokerage account but haven’t invested the money yet.
These funds invest 99.5% or more of their total assets in vehicles such as: cash, government securities and/or repurchase agreements backed by government securities.
Money market funds are also easier to access than other investments with similar returns, such as CDs. You can withdraw cash or buy other investments quickly.
Money market mutual funds are more diversified. They can invest in securities with interest payments that are not subject to federal—and sometimes state—taxes, which saves investors money.
I personally stash cash in a public money market fund while I research other long-term investments.
Certificates of deposit can help you stop overdrafting
When you redeem CD after a set period of time you receive the money originally invested plus you earn passive income through interest paid by the bank.
I have locked in an APY of up to 6% in 2023. CDs compete with my other investment options, such as dividend stocks that have similar returns with more risk, while maintaining the flexibility to recover my funds between 10 and 12 months after deposit of funds.
If you’re the type of investor who overanalyzes where to put your money, CDs can help you stash away some cash without overthinking things until they mature later.
If the US bank collapses in 2023 worries you, CDs are insured up to $250,000 if the bank is covered by the Federal Deposit Insurance Corporation.
FDIC insurance covers all accounts in your name at the same bank in total and does not cover $250,000 for each CD or account you have at the bank.
Do your research and don’t rule out the high-yield savings account
A high-yield savings account is the only option any person should use, especially if you’re expecting paychecks to cover the bills and want to start building an emergency fund that will also grow on its own.
With interest rates expected to remain relatively high into 2024, replacing traditional savings accounts with a high-yield option offers a stress-free way to start growing your savings. The only real downside might be the lack of a physical bank to visit.
Any strategies you learn should not be undertaken without evaluating whether the ideas shared fit with your own personal financial goals, current needs and risk tolerance.
In addition to refunds, be sure to evaluate any financial institution’s insurance coverage and customer service before trusting them with your hard-earned money. Also make sure you know how to access your money when you need it.
High interest rates for 2024 aren’t great news if you have debt to pay off. But they are useful if you have some extra cash that you won’t need in the near future and would like to grow with relatively low risk.