Where to Park Cash
Are you wondering, “What is a good alternative to cash?”
Are you tired of earning meager interest payments on your savings?
As interest rates decline, it’s important to seek out good returns on your cash. Whether you’re saving for a short‑term goal, building an emergency fund, or simply looking for better yields, there are several smart places to park your money.
Below are seven cash alternatives that balance liquidity, safety, and return potential.
This article may contain affiliate links which means that – at zero cost to you – I might earn a commission if you sign up or buy through the affiliate link.
Why You Need Cash
You need to keep a certain portion of your money in a liquid, cash-type account for short and intermediate term goals. If you’re thinking about buying a house or a car in a year or so, don’t put the down payment in the stock market.
You also need to be prepared for those pesky emergencies; a leaky roof, a blown gasket, or that unexpected medical bill.
Additionally, during periods of investment market declines, it’s nice to know that you won’t need to sell stocks at a loss to meet immediate financial needs.
The key is finding cash alternatives that pay more than a traditional savings account without locking up your money for too long.
7 Alternatives to Cash
1. High Yield Cash Accounts
Automated investment advisors or robo advisors aren’t just for investment management, many also offer high cash returns with no fees or lock up periods. In fact, many robo-advisors are paying yields greater than money market mutual funds. It’s simple to open a high yield cash account at a robo-advisor company like Wealthfront M1 Finance. After providing basic personal identification information, simply link your bank account and transfer the cash in. Robo-advisor cash accounts can offer high rates because they partner with several banks, to offer the highest available cash yields or returns. These financial companies also offer bank-level security.
Click on the link below to access the Wealthfront money market cash account.
2. Money Market Mutual Funds
These financial instruments have a stable one dollar value and pay higher yields than most savings accounts. They typically own short term debt issued by corporations and government. These are not the same as a “money market account” that might be offered at a bank.
Also called money market funds, you can buy these cash-alternatives at major investment brokerage firms like Fidelity, Vanguard or Schwab. If you have a cash balance in an investment brokerage account make sure to transfer it to a higher yielding cash alternative money market mutual fund. the cash is easy to access when needed for future investments.
Money market funds offer investors high liquidity with low risk.
3. TIPS-Treasury Inflation Protected Securities
Treasury Inflation Protected Securities (TIPS) won’t make you rich, but when inflation increases, so will the interest rates paid on your TIPS bonds.
How does the TIPS investment work?
- With TIPS, the interest rate is set at the purchase date. It always stays the same.
- The principal value of the investment goes up and down with the inflation rate.
- When the principal increases (decreases) you will get a larger (smaller) interest payment on the new principal amount.
- When the TIPS security matures, you get the higher or original principal amount; At maturity, you never get a smaller principal.
You can buy TIPs at TreasuryDirect.gov or through your investment brokerage account.
If you prefer to buy a TIPs fund like VTIP, you can purchase that through any investment brokerage firm that sells ETFs. Both M1 Finance offers ETFs investing and low or fee-free investment management.
4. Series I Government Bonds
Series I (for inflation) Government Bonds are similar to TIPS. With I bonds you not earn a fixed interest rate, and a bonus; an adjustable rate of interest that changes every six months, along with the inflation rate. So the combined interest rate includes a fixed interest rate plus an inflation adjusted rate for a new combined interest rate which adjusts every six months.
These bonds can be bought at your bank or at Treasurydirect.gov for as little as $100 in an amount up to $10,000.00 per year. They are among the best choice for inflation protection.
One disadvantage of I Bonds for wealthier investors is that you’re limited to purchasing $10,000 per year plus an additional $5,000 with your federal tax refund.
5. Treasury Bills
Another government savings product is the U.S. Treasury Bill. These are among the best places to park cash because of the higher yields and safety of a product backed by the U.S. government. Treasury bills come in various maturities ranging from a few days to 52 weeks. As interest rates rise, you’ll receive higher returns. One strategy to take advantage of rising interest rates is to ladder or regularly buy new issue three or six month treasury bills.
You can buy treasury bills at Treasurydirect.gov or through many major investment firms. If you prefer, buy treasuries through an ETF or mutual fund.
6. Short-Term Bonds or Bond Funds
These higher yielding cash alternatives come with principal risk, not found in CDs or money market mutual funds. Principal risk means that the value of your initial investment might fluctuate.
If you have a larger portfolio, you can buy individual bonds which mature within the next 1-3 years. Check investment broker for available issues. If you prefer, there are short term bond funds which will increase your investment costs a bit. Sample short-term bond funds are the Vanguard Short Term Index Bond Fund (VBISX) or a related ETF (BSV).
Short-term bond index funds typically yield higher returns than your bank savings account, although the return will change based upon market interest rates. Also, be aware that unlike your bank savings account or certificate of deposit, the principal value can fluctuate slightly.
When interest rates rise, the value of your bond fund and individual bonds will decline slightly. If you hold the individual bonds until maturity, changes in the bond’s value don’t matter as you’ll receive your initial payment as well as any coupon or interest payments along the way. When interest rates fall, the principal value of your bond or fund usually increases.
7. Certificates of Deposit (CD)
CDs lock in your money for 3 months to 5 years in exchange for higher interest rates.
Certificates of deposit are sold through banks and financial brokerage firms. In exchange for keeping your money invested for a specific length of time, the financial institution will pay higher interest rates. The longer term CDs typically offer higher returns. If you decide to sell, you might forfeit a small amount of interest.
Buying CDs with differing maturities means you’ll have ready cash for short term financial goals.
Alternatives to Cash – Wrap Up
No need to accept your bank’s low interest rates. With these cash alternatives, you can boost returns on the cash you need for your emergency fund and short term goals. Compare rates and put your cash stash to work for you.
FAQ
If you want to preserve the value of your cash, while increasing your interest rate and payments, there are several alternatives. Money market mutual funds can be bought through your investment brokerage account. A cash alternative fund, at a robo-advisor like Wealthfront offers high yields and preserves the value of your cash. Some banks offer high yield savings accounts, but be sure to shop around for the best yields.
Cash alternatives are financial instruments that preserve the value of your money, while offering higher yields than those available through a savings account. Cash alternatives include government bonds, certificates of deposit, money market mutual funds, high yield savings accounts and high yield cash funds.
Alternatives to CDs include high yield savings accounts, money market mutual funds-available through your investment brokerage account, Treasury bills-available through your investment account or Treasurydirect.gov and high-yield cash alternative funds. But, before you write off CDs, realize that if you need to redeem them early and forgo three to six months of interest, the higher CD interest rate might offset the penalty.
Related
- Do You Think Bonds Are a Good Place to Invest Now?
- 10 Best Alternative Investments Right Now
- Why Is Asset Allocation Important?
- How Much Cash Should I Have On Hand?
- Savings Tips For Renters
- Which Investment Carries The Least Risk?
- Best Investments When Interest Rates Are High
Disclosure: Please note that this article may contain affiliate links which means that – at zero cost to you – I might earn a commission if you sign up or buy through the affiliate link. That said, I never recommend anything I don’t believe is valuable.
M1 Disclosure: This content is not a solicitation, is not endorsed by M1, and was not reviewed by M1; the opinions expressed are solely those of the authors and do not reflect M1’s views. Information presented is accurate as of the video posting date; for the most up-to-date information, please refer to m1.com. Before making any investment decisions, consult your personal investment, legal, and tax advisors, as this content is for informational purposes only and not intended as investment recommendations.
4 thoughts on “7 Cash Alternatives – How To Get A Good Return On Your Money”
hello when I invest in notes do I receive my money back monthly or 1 year when the note is dew.
Hi Kevin, That will depend upon where you buy your notes, and the specific details. When you receive your principal back also depends upon whether you are buying one note or a product that includes multiple notes. Best way to find out is to look at the investment prospectus, or to call the note provider’s customer service number.
This guide is a game-changer! Barbara’s breakdown of cash investment options, coupled with practical tips on minimizing fees and taxes, makes it a must-read for anyone aiming to boost returns on their cash. Highly recommended!
Wow, Brian that was a wonderful review. Thanks so much 🙂 Best, Barbara
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