Where's the Best Place to Park Your Cash?
Yields are going up, but be sure to mind liquidity, safety, and tax issues.
Not so long ago, one cash investment seemed virtually indistinguishable from the next. With the Fed funds rate barely positive as recently as late 2016, most investors considered their low-yielding CDs and money market funds dead money--a necessary parking place for near-term expenditures, or a place to hunker down if they were feeling fearful. Nothing more.
Yet thanks to the Federal Reserve's efforts to normalize interest rates, cash yields have been steadily rising. It would be a stretch to suggest that cash is going to be a return engine any time soon, as you're lucky to earn more than 2% on any sort of cash instrument today. But as yields have risen, we're starting to see greater yield differentiation among various cash vehicles. Just a few years ago, FDIC-insured online savings accounts were in many cases yielding more than non-FDIC-insured money market mutual funds, providing an arbitrage opportunity for opportunistic investors. Now, however, a more traditional relationship between risk and yield prevails; you're going to earn the highest yields by being willing to put up with some liquidity constraints and/or venturing into non-FDIC-insured investment types.