As interest rates remain uncertain, financial experts suggest locking in a higher yield for 2024 by investing in a certificate of deposit (CD), according to Ken Tumin, founder and editor of DepositAccounts. CDs offer higher interest rates than savings accounts, but investors may face penalties for early withdrawals. While the top 1% average rate for one-year CDs is above 5.5%, Tumin anticipates a decrease in CD rates as the Federal Reserve gets closer to a rate cut.
Another smart investment strategy for both short-term and long-term savings goals is Treasury bills, or T-bills. These government-backed investment options have terms ranging from one month to one year and are not subject to state or local taxes. As of January 4, 1-month and 2-month T-bills were yielding roughly 5.4%, with potential even higher after-tax yields for T-bill investors in lower tax brackets.
For cash in need of liquidity aside from traditional CDs and T-bills, Seth Mullikin, founder of Lattice Financial, suggests money market mutual funds, which are actively managed mutual funds that invest in short-term, high-quality securities. However, like CDs, money market yields are dependent on the Fed’s actions and are expected to decline following any rate cuts.
In summary, Tumin emphasizes that as the Fed gears up to make rate cuts, it’s important for investors to be proactive in seeking higher interest-yielding options, such as CDs, T-bills, and money market funds, to optimize both short-term and long-term savings goals.
