Buying High Yield Savings, T-bills, and CD’s Will Help!
Do you have a plan? Our three bucket strategy could get you on track. Cash or cash equivalents are used to fill bucket #1 (short term needs) of the three buckets we talk about when doing a deep dive into a comprehensive financial plan for our clients. We use this strategy so assets in bucket #2 (intermediate financial goals) and bucket #3 (longer term financial goals) are not dipped into prematurely to meet short term needs, interrupting a client's timeline of achieving their longer term goals.
Deciding how much to put into bucket #1 (short term needs) depends on many variables including, risk tolerance and the ability to live within your means. Those that spend less than they earn can afford to hold less of a cushion in their short-term bucket.
Within bucket #1, you can hold more than just cash in a bank account. In order to enhance the return you receive, you should use a mini bucket strategy. First make sure you have a few months of daily living expenses in a savings or checking account. After you determine that amount, you can put some extra cash in a high yield savings account (see some examples below). You could also buy a combination of T-bills and FDIC insured CD’s with short maturities yielding more than 5% currently (see current rates). These T-bills are extremely liquid, and guaranteed by full the faith and credit of US government. FDIC insured CD’s are also liquid but not as liquid as a T-bill.
When constructing your short-term bucket do not forget about FDIC limits. As the recent regional bank runs show it’s not worth stressing about the safety your “safe” assets. My advice is to keep things simple.
Below are some current offerings* which could be used to build your customized short-term needs bucket.
US Government T-bills
4 weeks 5.06%
2 months 5.14%
3 months 5.14%
6 months 5.18%
(Source: Bloomberg 5/30/23)
High yield savings
Bask Bank 4.75% APY No minimum
CIT Bank 4.85% ($5000 min)
UFB Direct 4.81% (No Minimum)
(Source: Investopedia 5/30/23)
3 months 5.3% 9/7/23 5.3% Pacific Premier bank
6 months 5.25% 12/4/23 5.25% Santander Bank (DE)
10 months 5.25% 3/4/23 5.25% Associated Bank (WI)
1 year 5.15% 6/3/24 5.15% BMO Harris (II)
*All offerings and rates are examples only and are subject to availability.
Do you need a plan? Call or email us with any questions. See all our Money Matters with Dan and Brian articles featured on our Blog page and in TapintoChatham using this link https://www.tapinto.net/towns/chatham/columns/money-matters-with-dan-and-brian/articles