3 Ways to Make the Most out of your Cash Savings

Interest rates have been on the rise for about a year now, but you may have noticed that the rate on your savings account hasn't budged a bit. According to a recent Bankrate survey, the average interest rate for a savings account is less than 0.25%. Over the past decade, we have become so accustomed to near-zero rates that anything higher than zero might seem like a decent return. In today's market, things move quickly, and if you're wanting to enhance your savings accounts, you might want to consider these three strategies for making the most of your cash savings.

High-Yield Savings with Online Banks

While you may be used to the brick-and-mortar feel off a local bank branch, online banks can be a good alternative for savers who are looking to increase their interest income on their bank accounts. Banks like SoFi, Ally, or Marcus are all currently offering rates above 3.25% for FDIC-insured savings accounts. FDIC insurance provides protection to savers of up to $250,000 per owner in the event of a bank failure, so these are generally considered to be "safe" places to park your cash, as long as you remain under the insurance limits. If you're considering an online bank, make sure you're aware of any promotional "teaser" rates that may only apply up to certain deposit amounts, such as 3% on the first $50,000, then 0.25% on balances above $50,000.

High-Yield CD

With a certificate of deposit (CD) you're trading liquidity for a higher interest rate. CD rates have risen with the overall move up in interest rates over the past year. As of the time of this blog post, there are several options for FDIC-insured high-yield 6-month CDs with an annual percentage yield (APY) higher than 4.25%. One strategy may be to ladder your CDs, which is a technique of purchasing multiple CDs with different maturity dates. This strategy may work well if interest rates continue to rise, as your shorter-term CDs will mature and you'll be able to reinvest at higher rates. However, if rates begin to fall, you'll be glad you have your longer-term CDs paying rates that may not be available on the marketplace any longer.

Ultra-Short Bond Funds

An alternative to money market funds, ultra-short bond funds may be a good option for savers with more than enough cash parked in an emergency fund and are comfortable taking slightly more risk. Short term bonds are riskier than FDIC-insured accounts because the borrower of the funds may not be able to pay back the money. Because of this additional risk, bonds typically pay a higher rate of interest to their investors. Some of this risk can be managed by careful selection and due diligence, but it can never be completely eliminated. Currently you can find short-duration bond funds that have 30-day SEC yields near 4.5%.