Putting Your Cash to Work

In 2025 the inflation rate is 2.7% per the Consumer Price Index (CPI). Unfortunately, the average bank savings rate is a paltry .39% as banks continue to take advantage of their customers. So money sitting in a standard bank account is rotting in excess of 2% every year.

Use this knowledge to rethink where your cash lives and whether it’s pulling its weight. Here are several practical strategies worth putting on your radar.

Better savings options

  • Look at your current bank. There are often regular savings accounts and then high-yield savings accounts that is not marketed to current customers. It is your bank's way of trying to get new money into the bank. So play their game, and get some of your money into that higher yielding account. Be prepared to move some of your money out of the bank and then transfer it back to get the rate.

  • Search out high-yield accounts. According to Kiplinger, there are banks offering competitive annual percentage yields approaching 4.0% without monthly fees, meaning your cash can outpace inflation while staying liquid. There are many alternatives, just make sure the bank is on solid footing and the deposits are FDIC insured.

  • Look to credit unions. Historically they pay higher savings rates than banks, their deposits are insured, AND the rules to become a member are much more liberal than in the past.

  • Certificates of deposit are an option, but be careful. CDs offer higher interest rates in the low-to-mid-4% range, but now have hefty fines if you pull the money before the maturity date of the certificate. Consider a ladder of CDs with varying maturities and double check that you can easily stop rollovers when each certificate matures as some banks do not allow you to do this without actually stopping into a branch.

  • Treasury securities and savings bonds. Short-term treasuries still offer attractive yields relative to many bank products, with 1-year and 2-year yields often above 3%, and longer maturities trending higher depending on market conditions.

  • U.S. Treasury I-Bonds. For those looking for an inflation-linked option with tax perks, U.S. Treasury I bonds continue to carry a composite rate over 4% with interest income exempt from state and local taxes. I Bonds must be held at least one year. A modest interest penalty applies if redeemed before five years.

Combining strategies to meet your goals

Where you place your cash depends on the balance you want between safety, return, accessibility, and time horizon. A core emergency fund might live in high-yield cash accounts or short treasuries, while your day-to-day cash may not be getting the highest rate, but the funds are readily available.

A good place to start is to review your current bank and determine whether they are taking advantage of you. Unfortunately, many of them are and it is up to you to take action to fix the situation.

Rob Ostrower