Here is a one-year CD that now pays 5.36% - thanks to the Federal Reserve

By Brett Arends

There are safe places to park your money and get a decent return

Spring has arrived for savers. Suddenly the interest rates available on savings accounts, certificates of deposit and short-term bonds are back up to their highest levels since last fall.

You can thank inflation, which is proving harder to beat than Wall Street had previously thought, and Federal Reserve Chair Jerome Powell, who said Tuesday that the central bank will keep rates high for "longer than expected" to bring that inflation down.

This may be bad news for the stock and bond markets. But it's good news for anyone with cash on their hands that they want to deposit for a few months or years with no risk and at a good rate of interest.

For savers looking to deposit their money risk-free for a full year, Chicago-based bank CIBC is now offering a one-year certificate of deposit paying 5.36% interest.

That's the highest rate currently available for a one-year CD, according to data tracked by Bankrate.com.

The offer is through Agility, CIBC's online bank, and the minimum balance is $1,000.

For savers looking for somewhere to park their money safely for two years, Bankrate says the highest rate of interest on a 24-month CD currently is 4.82% from First Internet Bank of Indiana. This is followed closely by offers of 4.8% from First National Bank of America and TAB Bank. The minimum deposit is $1,000.

The CDs quoted are backed by Uncle Sam through the Federal Deposit Insurance Corp. FDIC insurance covers the money in your accounts against bank failure, up to $250,000 per depositor per bank account.

"It's a great time for savers," says Bankrate's chief financial analyst Greg McBride. The current interest-rate regime is the best we've seen for about 15 years, he says, adding: "These rates will persist for some time because the Fed is not close to cutting interest rates."

It's not just CDs. Interest rates are also back up for money-market funds and for bonds, although the latter don't come with FDIC insurance.

Vanguard reports that the interest rate on its flagship money-market fund, the Cash Reserves Federal Money Market Fund, jumped another 0.13 percentage points Tuesday to 5.39%, within a whisker of its highest rate in at least 15 years.

Unlike with CDs, the interest rates on money-market funds will fall or rise depending on what happens next with the Fed and the interest-rate market. Certificates of deposit lock in a rate for a set period of time.

Meanwhile, the interest rates on bonds have also been rising. Bonds are essentially IOUs issued either by a government entity or by a company. Unlike CDs, their price can go up or down, depending on what happens with the markets and interest rates. Bonds work like a seesaw: If interest rates rise, bond prices fall, and vice versa.

As recently as early February, BAA-rated corporate bonds, those at the bottom of the investment-grade category, were paying an average of 5.5% interest. Today it's more than a half a point higher, at 6.1%.

Even among short-term, low-risk bonds, you can now get good rates well above inflation. Vanguard tells me the yield to maturity on the bonds in its Short-Term Corporate Bond exchange-traded fund VCSH, which invests in the bonds of blue-chip investment-grade companies, is now a juicy 5.6%. And the benchmark Short-Term Bond ETF BSV, which invests one-third of its money in those corporate bonds and two-thirds in U.S. government bonds, is just over 5%. These funds own bonds that are typically due to mature within a few years. You get lower rates of interest than you would from longer-term bonds, but also a much lower risk of price volatility.

In both cases, your coupons should be safe, but the fund price will move around.

-Brett Arends

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04-20-24 1030ET

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