Where to Put Cash?
How to approach current low interest rates
As you might imagine, this is a question I have been fielding quite a bit lately. At this time, there is more than $25 million sitting in FDIC insured deposits in FPH client accounts at TD Ameritrade, and NFS earning close to ZERO(!) percent interest. To address this, I will soon be sending an email message to all clients with balances more than $20,000. My message in the email will be that there is actually not much else to do but let it sit and be safe.
As tempting as it is to seek alternatives that offer comparatively attractive yields, there is precious little in the investment world that offers both safety of principal and a decent rate of interest.
IMO, online banks still offer a legit alternative to cash in brokerage accounts, but even their yields on liquid FDIC-insured savings are now generally topping out under 1%.
Fixed annuity contracts issued by respectably-rated insurance companies have been offering yields in the 2.0-2.5% range for maturities as short as 3 years, but paperwork, product complexity, and lack of an FDIC guarantee are all limitations to consider carefully.
That said, there is one great, often-overlooked opportunity for some investors to safely earn much higher rates and that is by PAYING DOWN DEBT! Got a HELOC at 3% or more? How about auto loans or student debt? Paying down (or off) these debts with zero percent cash may be akin to arbitrage.
John H. Robinson is the founder of Financial Planning Hawaii and a co-founder of software maker, Nest Egg Guru