When we hear that the Federal Reserve is increasing interest rates, thoughts immediately turn to the negative impact on our mortgage rates, credit card debt, and how it will hurt our retirement savings. However, higher interest rates aren’t necessarily all doom and gloom. They can allow for greater earning power for your cash management.
Listed below are five investment vehicles, and their yield as of June 2023, that can help make rising interest rates work for you and your short-term cash savings. Recall that the term yield is defined as the income returned on an investment, such as the interest you earn in your bank account.
3-Month U.S. Treasury Bills (5.2% yield): Treasury Bills, also known as T-Bills, are short-term U.S. government debt obligations backed by the Treasury Department with a maturity of one year or less.
1-year U.S. Treasury Bonds (5.2% yield): Like T-Bills, Treasury Bonds are U.S. government debt obligations that are deemed safe and secure by the Federal government.
Money Market Funds (4.5-5.0% yield): Money Market Funds are a type of mutual fund that invests in high-quality, short-term debt instruments that are considered low risk and may be a good cash equivalent investment.
1-year U.S. Government-Sponsored Enterprises (5.3% yield): If you are willing to take on minimal risk, you may consider U.S. government-sponsored enterprises, i.e., Federal National Mortgage Association (or Fannie Mae), Federal Home Loan Mortgage Corporation (or Freddie Mac), and the Government National Mortgage Association or (Ginnie Mae), that buy mortgage loans and combine them into “pools” which are held in trust as collateral for the issuance of a mortgage-backed security.
Short-term, Investment Grade Corporate Bonds (5.1-6.0% yields in A-BBB rated bonds): If you’re willing to take on some credit risk, you may consider purchasing a 1-year maturity investment grade corporate bond, where the quality of a company’s credit is rated at BBB or higher by Standard & Poor’s or Moody’s.
Just goes to show that wise invesiong when interest rates climb may be a beter alternative to stuffing cash in your matress. Speak with your wealth advisor today to see how you can turn a perceived negative headline into a financial positive.
Data Sources: Bloomberg Finance, LP: 3-month T-Bill, 1-year Treasury Bond, 1-year U.S. Government/Agency Bond, and Investment Grade Corporate Bond yields (single-A to triple-B rated) as of 6/13/23. Forbes.com: 10 Best Money Market Mutual Funds Of 2023, updated 6/2/23 (Money Market Fund 7-day yields as of 6/1/23). Photo courtesy of Adobe Stock.
LS Investment Advisors, LLC (dba LSIA) is a registered investment adviser. The information presented is for educational purposes only and is not intended to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Actual returns may vary depending on various factors, including but not limited to length of time invested, additional fees and expenses, etc. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.