By Nick Strain, CFP®, CPWA®, AIF®, Senior Wealth Advisor
Interest rates are up! Have you started to move excess cash from your checking and savings to higher-earning accounts?
It is time to re-evaluate your cash holdings.
From 0.25% to 3.75% in 2022
The Federal Reserve has increased the federal funds rate six times so far in 2022 – from 0.25% to 3.75%. This is one of the fastest rate hikes in modern history. Another rate hike is expected in December 2022. For the last three to four years, saving accounts and money market funds paid virtually bupkis in interest because the Federal Reserve lending rate was so low. All that has changed with the recent hikes.
What we have noticed is that the majority of banks have not increased the interest rates in their clients’ savings accounts – despite the Fed’s increase of the federal funds rate to 3.75%. The average savings account interest rate right now, per BankRate.com, is just 0.16% (https://www.bankrate.com/banking/savings/average-savings-interest-rates/).
There are three ways you can earn a higher yield than keeping your funds in your savings account:
1: Flourish Cash. We have partnered with Flourish Cash, an online platform that partners with five banks to help provide high yield money market rates to clients to earn more money on their cash within their online system. Flourish Cash is currently paying 3.75% interest (as of 11/21/2022). Their rate has been increasing over the last year in tandem with the Fed’s increases. Their five banking relationships bring our clients higher interest rates and earn them more money. Client funds automatically flow to the highest-yielding bank, so each bank is incentivized to keep their rates high.
For your protection, Flourish Cash is coded to stop investing in any bank once it reaches the FDIC insurance limit of $250,000 per account owner. Once that limit is reached, funds go to the next-highest bank within its system. This ensures that clients continue to be covered by FDIC insurance. At 3.75%, for every $100,000, you can earn $3,750 per year in interest (if interest rates did not change). The Federal Reserve is anticipated to increase interest rates by 0.5% in December, so there is additional opportunity to earn a higher yield and more money in the coming year by utilizing Flourish Cash.
2: Brokered CDs. Banks are selling CDs through custodians like Fidelity and Schwab. These brokered CDs offer higher rates than what’s available by buying CDs directly through a bank’s own website. As of late November, 1-year brokered CD rates are paying 4.7% a year. There are also options to purchase 3, 6, 9 month and 2+ year CDs as well at varying interest rates. CDs are beneficial because they provide FDIC insurance and will not change in value, but they must be held for the duration of the term and not be liquidated to avoid penalties.
3: U.S. Treasury Bills. These can also be purchased through the Fidelity and Schwab platforms to earn a higher yield than savings accounts, along with the protection of backing by the U.S. government. Currently, 1-year U.S. Treasury Bills are paying 4.7%. These instruments are liquid; each security is traded on the open market and is priced daily. Thus, their price does fluctuate with market movement, especially as interest rates change. We would expect that 1-year U.S. Treasury Bills will temporarily go down in price if interest rates continue to increase – but will return their PAR value upon maturity.
Questions about any of these opportunities to get more from your cash? Interested in opening an account with Flourish Cash? Please get in touch with your HH team – we’d be happy to talk through these options with you.
Disclosure:
Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant.
