Three Places to Park Your Cash for the Best Return
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This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. Washington Wise from Charles Schwab is an original podcast that unpacks the stories making news in Washington. Listen at schwab.com slash Washington Wise.
Here's your money briefing for Monday, February 10th. I'm Mariana Aspuru for The Wall Street Journal. If you're looking to get the best return on your cash, financial advisors say that there are three places to maximize your money.
Everybody's individual circumstance is so unique to their own needs and their own cash needs and portfolio needs. Many people like to park their money in a high-yield savings account because you get so much more for your money than just putting in a traditional savings account. And additionally, many people will put some money in money markets and a CD.
We talk with Wall Street Journal contributor Lori Ayanu about how to know which one is right for you. After the break.
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As interest rates come down, the era of getting 5% yields on cash or cash equivalents like CDs appears to be over. But that doesn't mean you have to accept next to nothing on your money. Wall Street Journal contributor Lori Ayanu joins me. Lori, how much of someone's portfolio should be in cash?
How does this episode introduce three top cash parking options?
Cash or cash equivalents should range from 2% to 10% of one's portfolio as a guideline, but it can really vary widely depending on an individual's needs, financial advisors say.
What kind of things influence how much people have in cash?
You need to have cash for key purposes, as emergency funds in case of an unexpected circumstance like an illness or a job loss. You need it as liquid assets to tap for monthly expenses, loan and debt payments, and other personal financial goals.
Your story discusses three good options to put your cash so that it can work for you. The first one is a high-yield savings account. What makes a high-yield savings account a good option?
There's a lot of competition amongst bricks and mortar banks, online banks, and other financial institutions to offer these deals to attract customers. Instead of just parking your money in a regular savings account, you can get a lot more bang for your buck using one of these accounts. In January, the rates were as high as 4.75%, according to Bankrate. So these accounts are federally insured, up to $250,000 per bank, per depositor, an account type. So you can have multiple accounts at different institutions and still get your FDIC coverage. And they're a good option if you need to access your cash on a regular basis, because many offer access to ATM machines. Some allow you to link to checking in other accounts.
And know all the product features because there's downsides you should be wary of. For example, the yields on these accounts can fluctuate since they often move in tandem with short-term interest rates set by the Federal Reserve. Some are tiered so that only part of your balance, say on the first $500 or $1,000 or $10,000, gets the top rate and then drops after that. And some require minimum balance and have limits on withdrawals. So you really have to know the fine print.
Another option are CDs, certificates of deposit. Why are they an appealing savings tool for some people?
That's a good savings tool if you want to set savings goals for the future, because what happens is you're locking up your money for a period of time and it's not accessible. It's a fixed rate. They offer different terms. You can get three months, six months, one year, five year, three year.
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