It is no secret that the stock market and bond market have both taken big hits this year. The Federal Reserve is on a tear with raising interest rates in an effort to tamp down inflation. So far this year, the Fed has raised rates 5 times, but inflation continues to persist. Last week’s Consumer Price Index numbers for September revealed that inflation had inched up to 8.2%, suggesting that the Fed’s strategy is not working… yet. The Fed has indicated they intend to continue to raise rates in the months ahead, and this is likely to cause more pain for consumers paying their now higher monthly bills.
With all this in mind, people ask, “If I want to hold some cash, where is the best place to invest now?” Here are a few good options.
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Federal I Bonds are paying 9.62%, but you must act quickly to secure this rate. The rates for I Bonds are based on inflation over prior 6-month periods and are locked in for 6 months. The rate is set to change on November 1st and is estimated to drop to 6.47%. If you buy this week, you’ll get the 9.62% rate for 6 months before the rate drops. Keep in mind that you are only allowed to purchase $10,000 of I Bonds in a calendar year. If you are married, each of you can purchase $10,000. This is a longer-term investment and must be held for one year. After that, there is a 3-month interest penalty if redeemed within 5 years. For more information, go to www.treasurydirect.gov and search for I Bonds. You can also review one of my recent articles about I Bonds.
High-yield Money Market
One benefit of rising interest rates is, well, higher yields on savings accounts. As I write this, I see rates as high as 3% and many in the mid-2 % range. The major benefit here is that your money is liquid, meaning you can get it anytime you choose. To shop top rates, visit www.BankRate.com.
Certificates of Deposit can offer even higher rates depending on how long you are willing to lock your money up. As I write this, top rates varied from 3.7% for a 1-year CD to 4.25% for a 5-year CD. Begin your search for high-yielding CDs at www.NerdWallet.com.
While the markets have taken a hit, it is good to get a head start on knowing where to invest your available cash. Be sure to consult with a certified financial planner before making any significant decisions with your money.
Stewart H. Welch, III, CFP®, AEP, is the founder of THE WELCH GROUP, LLC, which specializes in providing fee-only investment management and financial advice to families throughout the United States. He is the author or co-author of six books, including 50 Rules of Success; J.K. Lasser’s New Rules for Estate, Retirement and Tax Planning- 6th Edition (John Wiley & Sons, Inc.); THINK Like a Self-Made Millionaire; and 100 Tips for Creating a Champagne Retirement on a Shoestring Budget. For more information, visit The Welch Group. Consult your financial advisor before acting on comments in this article.
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