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With the expectation of interest rate cuts in 2024, investors are seeking ways to make the most of their short-term savings without losing out on potential returns.
According to December meeting minutes released Wednesday, Federal Reserve officials predict three quarter-percentage-point cuts in 2024. However, the exact timing and extent of these changes remain uncertain.
To help guide savers through this period of uncertainty, Ken Tumin, founder and editor of DepositAccounts, has outlined four top options for managing cash in 2024.
One option is to lock in a higher yield for 2024 with a certificate of deposit (CD). While CDs may have higher interest rates than savings accounts, there is typically a penalty for withdrawing funds before the CD matures. As we approach the Fed rate cut, Tumin warns that CD rates will likely begin to decrease.
The current average rate for one-year CDs is above 5.5%, as of Jan. 4, according to DepositAccounts. Tumin advises that early withdrawal penalties can vary, so it’s important to carefully review the terms and conditions.
2. Penalty-free certificates of deposit
For those who may need the funds in less than a year, a penalty-free CD could be a viable option. Although these CDs often offer lower interest rates than traditional CDs, they can still provide a higher rate than a savings account. Additionally, there is no early withdrawal fee if access to the funds is required before the maturity date.
Certified financial planner Patrick Lach recommends Treasury bills as a great option for managing short-term or long-term savings. T-bills, backed by the U.S. government, come in terms ranging from one month to one year and can be purchased with ease. Interest earned on T-bills is also exempt from state or local taxes.