For investors who are weary of stock and bond volatility this year, a stable corner of financials is starting to look attractive. The Federal Reserve just raised interest rates by 0.75 percentage points, and Fed Chairman Jerome Powell has suggested a similar increase could be expected in July. Recession fears have also put investors on edge, with the S&P 500 down nearly 23% for the year and bond yields hitting multi-year highs last week. Suddenly, treasury bills or treasury bills, Series I savings bonds, and high-yield savings accounts are all the rage, at least for some of your holdings. “For the part of your portfolio that you need to protect, cash seems more attractive,” said Christine Benz, director of personal finance at Morningstar. When choosing the right “safe” asset, investors must make a trade-off between three priorities: yield, stability and liquidity, she said. “If people want to think about these three things on their dashboard, it can help determine where to look and which instruments to focus on.” Although longer-term bonds have suffered from the rise in rates, high-quality short-term issues – such as Treasuries – are starting to look promising, said Charles Failla, certified financial planner and director at Sovereign Financial. Group. The staggering of these instruments consists in buying issues of different maturities in the same portfolio. Three- to six-month Treasury bills, available at TreasuryDirect.gov, can also be an attractive place to store cash as interest rates rise. Rates on three-month treasury bills are around 1.6%, while six-month treasury bills are offering a rate of around 2.2% as of June 17 . Allan Roth, founder of Wealth Logic, said he always recommends the Vanguard Total Bond Market Index Fund ETF (BND), as well as 2-year Treasury bills. “If you’re buying longer-term bonds, that might work well, but you’ll have more interest rate risk for no more reward,” he said. Municipal bonds may also be an option for investors seeking tax-free income; they are exempt from federal taxes and, if the purchaser lives in the state where the bond is issued, from state taxes. “Even though the municipal bond nominally pays less than corporate bonds of similar quality, the fact is that the income comes back to you tax-free,” Failla said. Series I Savings Bonds, which are also available at TreasuryDirect.gov, currently offer an interest rate of 9.62%. These bonds are also inflation protected and exempt from state and local income taxes. Here’s the catch: you can cash them out after a year, but you’ll lose the last three months’ interest if you redeem them before five years. “You wouldn’t want the entire amount to be in I-bonds,” said Benjamin Brandt, CFP and founder of Capital City Wealth Management. He recommends it as a “middle-term asset” for clients who have excess saved for emergencies and are comfortable locking a small amount of it into an I-bond. Finding cash Certificates of deposit are another possibility, but there is usually a penalty for “breaking” the CD before it matures. If you want easy access to your money, a high-yield savings account might do the trick. Indeed, banks like Discover, Capital One and Barclays are offering returns of around 0.9% on their online savings accounts, according to Bankrate.com. A select few, such as Citizens Access, offer 1.25%, but you’ll need to deposit at least $5,000. Just be sure to read the fine print. “The teaser rates are something to watch,” Benz said. “Make sure there are no strings attached to the performance you see.”
Higher interest rates are here, making these vanilla investments attractive
