"Financial Planning ... it's not always about money."

Three Ways You Can Cash In on Cash

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David M. Brenner, ChFC®, CLU®

D. M. Brenner, Inc.
Phone : (858) 345-1001
Schedule a Meeting

Cash isn’t trash anymore.

With stocks—and just about every other asset—taking a beating this year, even the most aggressive investors can suddenly see the virtue of keeping some money liquid and safe from market turmoil. And, at long last, your cash can earn income you don’t need a microscope to detect.


To do better, though, you’ll have to put your money in motion. Bank accounts have earned next to nothing for nearly a decade and a half—and still do. With the Federal Reserve jacking up interest rates, the national average yields on savings and money-market accounts at banks have doubled this year—to 0.14%, a level that Greg McBride, chief financial analyst at Bankrate.com, calls “nothing short of pathetic.”

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Fortunately, raising the return on your cash is easier than ever. For most investors, the two best choices are money-market mutual funds and U.S. Treasury securities.

For years, money-market funds’ yields have been stuck near zero, and individual investors yanked $43 billion out of such funds last year, according to the Investment Company Institute. In recent months, though, these funds have finally begun to pay more income. The Crane 100 index of the largest money-market funds yielded 2.64% this week, up from only 0.02% in February and 2.01% at the end of August.

“Money-market funds are worth a second look now,” says Harry Sit, who runs a blog called The Finance Buff. “Rather than having to wait for [online banks] Ally or Synchrony or Marcus to adjust their rates on savings accounts or CDs, your money-fund yields can adjust daily with the market.”

Your brokerage firm may force you into its “cash sweep,” an account with an affiliated bank that is likely to pay much lower yields—a measly average of only 0.29% as of Sept. 23, according to Crane Data.

Sweep accounts are designed as a receptacle for the dividend and interest payments your stocks or other investments throw off. All too often, they function like a jail, imprisoning your cash where it earns punitively low returns.

However, you should be able to transfer your cash balance out of any sweep accounts into money-market funds offering much higher income.

This week, more than 380 money-market funds were yielding 2.5% or higher, averaged over the past seven days, according to Crane Data. Many are from such leading firms as Fidelity Investments, Charles Schwab and Vanguard Group.

You can strike an even better deal with Uncle Sam himself.

Inflation-protected savings bonds, called I bonds, are offering a 9.62% annual yield for the following six months to investors who buy before the end of October. The yield for new buyers will change on Nov. 1, depending on the latest update to the inflation rate in October.

You can’t buy more than $10,000 in electronic I bonds per account per year, you must hold for a minimum of one year and you’ll forfeit three months’ interest if you redeem within five years. So I bonds aren’t quite as flexible and liquid as cash.

Uncle Sam is offering a good return on cash, though. The yield on three-month U.S. Treasurys has risen by more than 3.25 percentage points this year, a greater increase in nine months than in any full year on record back to 1981. The one-month Treasury bill yields 2.6%, up from 0.05% at the beginning of 2022.

You can buy T-bills straight from the U.S. government at TreasuryDirect.gov, or through a brokerage firm. TreasuryDirect charges no fees or commissions; most brokers don’t either on new-issue Treasury securities.

Unlike money-market funds, Treasury securities are backed by the full faith and credit of the U.S. government, so they are considered risk free. The income on Treasurys is generally exempt from state and local taxes.

“Nobody advertises Treasurys,” says Mr. Sit of The Finance Buff. “The government doesn’t really have a marketing budget, and the brokers don’t make any money on them. So a lot of people forget you can buy Treasurys direct, or they just don’t know about it.”

Those who do know are gleeful, if not giddy, over getting some income on their cash again.

“When we were kids, we all played these games where you accumulate things, like Monopoly,” says Armando Arias, a software engineer in the Bay Area who has been buying six-month Treasury bills twice a month since August on TreasuryDirect. Earning more than 3% on his cash “reminds me of the joy of building up all those hotels on Boardwalk,” he says.

“At [JPMorgan] Chase, I made 10 cents in interest in August—but we earned over 3% [annually] on our Treasurys,” says Eric Lieber, a retired technology manager who lives in the Los Angeles area.

He uses an online tool at Charles Schwab to build a so-called ladder of Treasury securities that mature at constant intervals between one month and one year. “That gives us extra income without having to sell stocks when prices are falling,” Mr. Lieber says.

“You can make your own little money-market fund with Treasury bills,” says Jonathan Kahn, an individual investor in New York who also buys on TreasuryDirect. “You even get check writing, because it’s tied to your bank account. But TreasuryDirect is better and safer [than a money-market fund], with the same utility, and a state and local tax preference.”

Mr. Kahn sticks to one-month T-bills, automatically “rolling” or reinvesting each bill for a total of two years.

With one-year through seven-year Treasurys currently yielding more than maturities of at least 10 years do, you might be tempted to buy nothing but short-term Treasurys.

Interest-rate changes are unpredictable, though. So Dave Culbertson, a former financial manager in the energy industry who lives in the Houston area, has been building a ladder of the highest-yielding Treasury that matures each year between now and 2032.

“If interest rates go up, great,” he says. “If they go down, at least I have some longer-term yields locked in.”

Write to Jason Zweig at intelligentinvestor@wsj.com

David M. Brenner profile photo

David M. Brenner, ChFC®, CLU®

D. M. Brenner, Inc.
Phone : (858) 345-1001
Schedule a Meeting