This may be the time to lock in high interest rates on your savings
Before creating a stepping stone or ladder, savers should also consider whether they have the time to manage certificates at different banks with different maturities, Ms. Costa said. Unless you’re moving a large sum of cash, she said, the effort may not be worth the extra revenue.
For many people, Ms. Costa says, choosing a savings account with a high return may be the best approach, even if it means getting a slightly lower return on your savings. For example, online bank Marcus, the consumer arm of Goldman Sachs, offers 4.5 percent on a savings account, and Ally Bank, another online bank, pays 4.35 percent. To transfer money, you must link the savings account to your regular bank.
Here are some questions and answers about CDs and savings:
Why don’t I leave my money in a high-yield savings account?
Savings accounts are suitable for emergency funds that you may need in the short term, such as for an unexpected car repair. But banks can and do change the rates they pay on such accounts at any time, so that option could become less attractive if rates fall. However, that shouldn’t be a major concern if your money is intended for emergency expenses, Ms. Benz said. For a rainy day fund, she said, “the goal is return on principal rather than return on principal.”
What about money market funds?
Many brokerage firms have paid up 5 percent on money market funds and low-risk investment accounts. But money market funds are not federally insured. And the rate on these accounts can change at any time.
Should I move more of my investments into cash while savings rates are still attractive?
Paul Brahim, a financial advisor at Wealth Enhancement Group in Pittsburgh, said he heard that question from clients looking for attractive returns on cash with low risk. He said he generally advised clients to keep money in cash based on their spending needs for the next six months to three years, including a reasonable reserve for emergencies.
But if you take too much money out of long-term investments, Mr. Brahim says, market timing becomes more of a risk and you could miss out on significant investment gains. “Cash is a great idea for everyone,” he said. “But it is important to have a rational distribution.”