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Inflation remains as stubborn as ever and continues to prop up interest rates. The Federal Reserve aggressively raised interest rates 11 times in 2022 and 2023 in an effort to curb inflation. More recently, the Fed has paused interest rate changes at its last five meetings as inflation has slowly ticked up in 2024.
The resulting elevated interest rates have burdened borrowers with higher monthly payments due to the higher cost of borrowing. On the other hand, the increased rates have also allowed savers to enjoy considerably higher yields. Since 2023, annual percentage yields (APYs) with top savings accounts and certificates of deposit have outpaced inflation.
Fortunately, a wide range of savings options are available to capitalize on higher yields. However, these options are not all created equal, so it’s wise to learn how they work to determine the best fit for you. Here are the best places to park your savings right now.
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The 4 best places to put your savings right now
If you have money to put away in savings, one of these options could be a smart move today:
Certificates of deposit
Certificates of deposit (CDs) are a type of deposit account you can open with a bank or credit union for a fixed rate of return over a specific period. CDs offer higher yields than traditional savings accounts in exchange for your agreement to keep the funds locked in the account for the CD term, which typically ranges from one month to five years or longer.
And therein lies the rub for some account holders. If you withdraw funds from your account before its maturity date, you may incur an early withdrawal penalty or lose out on potential earnings.
If you think you may need to access your savings, you can opt for a no-penalty CD that allows you to do so without penalty, but these accounts typically earn a lower yield than traditional CDs. Alternatively, you could employ a CD ladder strategy. In this case, you’d open several CD accounts with different terms to have more regular access to your funds without incurring penalties.
CDs are ideal if you’re looking to lock in a high yield, especially if you anticipate interest rate cuts. The Fed recently indicated it will lower the federal funds rate multiple times in 2024. However, the prevailing consensus among rate-watchers suggests that elevated interest rates are delaying any cuts until later in the year.
Find out the top rates you could earn on your savings now.
High-yield savings accounts
Like CDs, high-yield savings accounts (HYSAs) are federally insured deposit accounts that offer higher yields than traditional savings accounts. According to the Federal Deposit Insurance Corporation (FDIC), traditional savings accounts are earning a paltry 0.46% on average. By contrast, many of April’s best high-yield savings accounts provide yields between 4.35% and 6%. Given that the Bureau of Labor Statistics reported the March inflation rate at 3.5% year-over-year, saving in a top-earning high-yield savings account may help to preserve your money’s value against inflation.
Unlike CDs, high-yield savings accounts are highly liquid, meaning you can withdraw money from your account at any time without paying for early withdrawal penalties. Still, check your bank or credit union’s policies before opening an account, as some limit withdrawals and transfers to six per month.
If you want the flexibility to access your money in a financial emergency while still earning a high yield, an HYSA may make sense. Keep in mind, however, high-yield savings accounts have a variable interest rate that could fluctuate at any time.
Money market accounts
Money market accounts (MMAs) are another savings option that generally delivers a higher yield than a traditional savings account. These accounts combine the benefits of savings and checking accounts. They provide a safe, interest-earning place to stash your cash while offering limited check-writing capabilities and debit card transactions.
MMA accounts are also federally insured up to $250,000 per account, per depositor, and they’re often utilized for a specific purpose such as a home maintenance fund. In this case, your money could earn interest but you’d have the flexibility to write a check or use your debit card to pay for property taxes or a contractor’s services.
Treasury bills
The savings options discussed to this point are each federally insured by $250,000 per account. If you want to save an even larger sum, you might consider U.S. Treasury bills, or T-bills, as they are commonly known.
T-bills are short-term bonds backed by the U.S. Treasury Department with terms between four weeks and one year. These bills are short-term debt obligations often sold in denominations of $1,000, but they’re offered through TreasuryDirect.gov in denominations of $100. Current T-bill rates hover around 5.00%. As of April 19, 2024, a four-week T-bill earns a 5.28% rate, while 52-week T-bills earn 4.91%. Once the T-bill matures, you’re eligible to receive the fixed interest rate.
T-bills may be worth considering if you’re looking for government backing for your funds that exceed FDIC limits. It’s relatively easy to purchase these bills on the TreasuryDirect website or buy and sell them through a broker or investment bank.
The bottom line
Before parking your money in one of the options listed above, it’s wise to consider your savings timeline and whether you might need access to your funds. If you need the option to withdraw funds, a high-yield savings account or money market account will be more flexible than a CD or T-bill since the latter options earn the most when funds reach their maturity date.
On the other hand, if you want to lock in a fixed rate now, a short- or long-term CD or T-bill could give you the rate guarantee you’re looking for. Remember, if interest rates rise, your CD or T-bill could earn less than the market. Of course, the opposite is true, if interest rates drop, you’ll earn more interest at your locked rate.
