Cash Management In a Rising Interest Environment

Written by: Ashley Perlmutter

With the Federal Reserve raising interest rates to combat inflation, we have been seeing a huge spike in short-term rates, CD’s, and money market accounts. At the same time, many clients and prospects we’ve been talking with are actually holding onto a ton of cash at large institutional money center banks that are paying close to 0%, so there’s a large opportunity for those of you in this position to better manage your cash in this type of increased savings rate environment. Let’s take a look.

Many of you might be weary right now about your financial picture given extreme market volatility, 4-decade high inflation data, and rising rates from the Federal Reserve. The interest rate market is all over the place with the Federal Reserve projecting and telegraphing future hikes in the coming months. Because of this uncertainty, a lot of people might want to hold on to extra cash in the case of a potential recession or future large purchases. However, because of these rising rates, there’s an opportunity to earn more money on cash sitting in your savings or checking accounts. 

You can now get FDIC insured savings above 1%, so make sure you are looking at high-yield savings accounts instead of your traditional ones and are shopping around for the highest rates. If you feel like taking on further time risk, we have also been seeing individuals purchase CDs and Treasury Bills approaching the 3% range, which was unheard of just a few weeks back. Additionally, for those of you looking for other higher interest rate vehicles, check out our blog on I-bonds as well. 

With this changing economic environment, it’s super important to stay on top of your financial plan and make sure you are updating/altering it accordingly.

Related: Cash is Back as an Asset Class