There is no reason why any of your cash should be earning less than 2% right now. In fact, if you’re not going to use your cash for two years or more, you should be getting 3%. And next year, you should earn even more!
With the ease of moving money electronically, even your checking account should be paying you significantly more than the national average of 0.17%.
The chart below shows the pathetic amounts being paid to you by your bank.
Meanwhile, the prime rate is at 5.25%. The prime rate is what banks charge their best customers when they borrow money. This means that your bank is making a big chunk of that difference.
Talk about raking in the profits! The margin between the prime rate and your checking account rate is growing while interest rates are rising… It should be shrinking!
Now, because you can transfer money electronically from your brokerage account, your money market account, or even your savings and checking accounts, you can supercharge the return on your money.
In some cases, you can shift money from one account to another in a matter of seconds, especially if your accounts are with the same institution. If you have accounts at different institutions, two to three business days is the norm.
Figure out when you are paying bills, give yourself a three-day cushion, and transfer the funds from your money market or brokerage account into your checking or savings account. It’s that simple.
That way you can actively increase your income and not leave it to the bank to do it for you. Big banks will NEVER act in your best interest. It’s not a profitable option for them.
If you keep your money in your brokerage account, sweep your cash into an interest-bearing money market account daily. My accounts at my brokerage firms pay me more than 1.4%. It takes two days for me to shift that cash to my checking account.
My money market savings accounts at two well-known banks are paying me almost 2%. They have limits on how many withdrawals I can make each month, but if I am paying bills four times a month, that’s not a problem. Again, it takes two days to shift the cash from these accounts to my checking account.
My longer-term cash (money I won’t need for a year or two) sits in U.S. Treasurys and CDs, which are paying between 2.4% and 3%. I ladder these investments so that I can reinvest as the Fed continues to raise rates.
The next two years are going to provide the best environment for fixed income returns. It’s up to you to lock them in if you’re in that market. By this time next year, you’ll be able to lock in 10-year government paper with yields of more than 4%. Five-year CDs will be paying you the same.
The key is to ladder and not be stuck in anything for more than 10 years. Don’t even think about a 30-year Treasury or a long-term corporate bond. No one can predict where rates or inflation will be 30 years from now.
This weekend, sit down and go over every account where you have cash sitting and earning next to nothing. Spend an hour opening a couple of online accounts at the banks below, and let your money grow while you sleep!