As the year 2024 arrives, it's time to start thinking about your savings goals for the year. Experts predict that interest rates will decrease this year, which means that your current short-term savings strategy could need a revamp.
Fortunately, there are several effective ways to maximize the return on your short-term investments in 2024.
- Certificates of Deposit
Certificates of deposit (CDs) are a great way to lock in a high yield for your savings.
These accounts earn interest for a predetermined period, usually one to five years. While the interest rates on CDs may change before the CD matures, they are generally higher than those on savings accounts. Keep in mind that if you withdraw your money before the CD matures, you will usually incur a penalty fee.
- Penalty-Free CDs
If you anticipate needing access to your savings before the end of the CD term, a penalty-free CD could be a better option. These accounts earn lower interest rates than traditional CDs but do not charge a penalty fee for early withdrawal.
You may be able to find penalty-free CDs at your current bank offering higher yields than your regular savings account.
- Treasury Bills
Treasury bills, or T-bills, are short-term investments backed by the US government. These securities have terms of one month to one year and offer competitive interest rates. You can purchase T-bills via TreasuryDirect or a brokerage account.
One advantage of T-bills is that the interest is generally exempt from state and local taxes. Keep in mind that T-bills are less liquid than cash held in CDs or savings accounts, so if you decide to sell before maturity, you may incur a transfer delay fee.
- Money Market Mutual Funds
Money market mutual funds are another option for investors seeking a place to park their cash. These mutual funds invest in lower-credit-risk debt, such as Treasury bills. However, your cash in these funds is not backed by the Federal Deposit Insurance Corporation (FDIC) like in money market deposit accounts.
As a result, yields on money market funds can fluctuate with market conditions and Fed policy changes.
As you consider which short-term savings strategy is best for you in 2024, keep in mind that interest rates are expected to decrease this year. This means that yields on CDs, penalty-free CDs, T-bills, and money market mutual funds could potentially decrease over the course of the year.
It's essential to weigh the pros and cons of each option and consider your short-term savings goals when making your investment decisions.
