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In recent weeks, 44% of Americans in households making $125,000 or more say they’ve put more cash aside to cover future expenses. That’s according to the Conference Board’s May Consumer Confidence report.
But are they investing it?
“Keeping money in cash forever isn’t a plan,” says Rebecca Palmer, a certified financial planner in Washington, D.C., and head of guidance for financial planning platform Fruitful.
“It’s actually postponing a plan,” she says.
More than a third (37.7%) of consumers expect stock prices to decline over the next 12 months, according to the report. That’s a more optimistic number than April’s 47.2%, but still higher than the 23.7% who expected a drop in January.
“There’s definitely a feeling of fear in the markets right now,” Palmer says. “A lot of people are feeling this, [and] it’s OK.”
But she emphasizes that fear is a starting point, not a strategy.
Why are people nervous about the market?
Turbulence has contributed to people’s investing anxiety. According to some measures, the level of stock market volatility in April was at its highest point since 2020.
Today’s investors are also knee-deep in alarming headlines and social media doom, Palmer says.
“They just have a lot more overwhelm to deal with than prior generations did, even if it’s the same kind of market turbulence that happens,” she says.
But keeping money in a checking account, earning no interest (or in a pillowcase, you know who you are) can put you at a disadvantage.
“You’re losing money to inflation,” Palmer says.
Where can you put your money?
If the stock market is making you uneasy, or you’re keeping money accessible for a nearer-term goal, here are a few places you can consider putting your cash to earn interest and stay ahead of rising consumer prices.
High-yield savings accounts
Potential interest rate: 4%+
High-yield savings accounts offer higher interest than savings accounts at traditional banks. Many banks offering these rates are online, and if they’re FDIC-insured, they offer the same protections for your money as brick-and-mortar banks.
“If you can get 4% on your savings, or even 3.8%, versus the point-nothing that one of the big brick-and-mortar banks are going to have, then take the better rate,” says Cindy Sforza, a CFP with Lucidity Wealth Advisors in Brea, California.
Bank certificates of deposit (CDs)
Potential interest rate: 4%+
A certificate of deposit (CD) is a short-term savings account that allows you to lock in an interest rate for a certain time period — i.e., six to 12 months, with some terms as long as five years.
The trade-off is that your money is also locked in; you’ll pay a penalty if you withdraw early.
When CD interest rates are higher than other savings accounts, this can be an easy way to earn some interest. But when CD interest rates match what you’ll find in other short-term places, it may not be worth committing, Sforza says.
“Frankly, CD rates today are pretty close to what you can get in a high-yield savings account anyway, and a CD is a time commitment,” Sforza says. “Just do your rate shopping, and see if it makes sense to tie it up in a CD.”
Your goals will determine your choice — if you need to keep the money accessible, a CD might not be your top pick.
Money market accounts
Potential interest rate: 3.5% – 4.4%
A money market account is a savings account that offers a higher interest rate than traditional savings accounts, along with limited check-writing and debit card access to your funds. Money market rates may not match the best high-yield savings accounts, but HYSAs typically don’t offer checks or debit cards.
“[Money market accounts] might give you a slightly lower rate on your money because it’s a little bit more accessible versus the savings account,” Sforza says.
Treasury bills
Potential interest rate: 4%+
Treasury bills, or T-bills, are government-backed investments with terms ranging from four weeks to one year.
You have the option to purchase T-bills through a bank, brokerage, or directly through TreasuryDirect.gov.
John Bell, a CFP with Free State Financial Planning in Columbia, Maryland, notes that while TreasuryDirect.gov may not be the most user-friendly website, linking your bank account to the site allows you to invest in your chosen T-bill and opt for automatic reinvestment upon maturity.
Another convenient option is a Treasury account, available at select brokerage firms, which handles the purchase of T-bills, holds them until maturity, and reinvests the profits for you.
(BW has partnered with Atomic Treasury to offer a Treasury account. Public, an online broker reviewed by BW, also provides a Treasury account.)
One of the advantages of Treasury bills is their minimal risk and government security, along with the tax-free interest earned at state and local levels.
“You can also benefit from a slightly higher yield, especially if you reside in a high-tax state,” Bell explains.
Many brokers offer Treasury exchange-traded funds (ETFs) or index funds, allowing you to invest in a variety of Treasury products.
What’s the bottom line?
While the aforementioned methods yield interest, they may not be the most effective long-term savings and investment solutions, according to Sforza. For funds you won’t need to access for at least five years, investing may be a more profitable option.
“Although the market fluctuates, this is your long-term money,” she emphasizes. “It’s not the cash you rely on for immediate bill payments.”
If the stock market causes anxiety, consider allowing your portfolio to work for you. Index funds, index ETFs, and target-date retirement funds offer a simple entry point into investing, Sforza suggests.
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