Cash has been the scourge of investors for nearly a decade now. On a practical note, cash reserves are a key piece of any financial plan. It’s these cash reserves which provide the buffer and peace of mind in case of emergencies or immediate liquidity needs. For those in their accumulation phase, still collecting a paycheck, these reserves may often equal three to twelve months of their living expenses. For retirees, a well-managed cash reserve can provide an emotional barrier to their longer-term investment portfolio. For this group of investors, having cash equal to a year or two worth of needed withdraws from their investment accounts can help reassure them during pullbacks and corrections in the market that they won’t need to be selling their investments when prices are less advantageous.

A problem has arisen over the last decade though for savers of all ages. As the Federal Reserve attempted to stabilize the economy through the Great Recession they aggressively lowered interest rates in order to provide liquidity and make cash more accessible in the economy. What was good for the economy as a whole turned out to be terrible for the prudent saver who kept cash reserves on the sidelines and received historically low rates of return only to see risky assets climb exponentially.

As the recession stands nearly ten years past and the Fed has begun steadily raising interest rates again, one might assume savers are finally getting their due. However, this has proven to be far from the truth! In reality, interest rates now vary widely from institution to institution as well as the saving vehicle used. To accentuate the disparity even further, with rates still barely off lows, the nominal difference between the lowest option and highest may be only a percentage or two but on a relative basis, this can often represent a 20x to 200x difference in interest earned. With this in mind, here are a few options savers have in today’s environment and what they can expect in return.

 

Big Name Banks: 0.01% to 0.30%

Annual earnings on $15,000: $1.50 to $45

As we’ve seen historically, the biggest banks have wide access to capital and little need to provide an incentive for savers to park cash with them. A broad survey of some of the nations largest banks shows most of them paying effectively zero interest to savers with balances under $25,000 and for those over this amount just slightly more than zero. As it turns out the name brand bank you may have been utilizing for years, or even decades, is often the worst place to leave your cash from a yield perspective.

 

Online Banks: 1.75% to 2.25%

Annual earnings on $15,000: $260 to $340

For those comfortable banking with an institution that they never set foot in, online banks can be a solid option for their cash reserves. These banks tend to be much more aggressive with their interest rate offerings than the name brand banks across all classes of products including checking, savings, and CDs. In addition, with today’s speed and flexibility of transferring funds overnight from one bank to another, individuals are typically just one business day from having these funds available in an account at their local “brick and mortar” bank branch should the need arise.

 

Treasury Bills: 2.10% to 2.50%

Annual earnings on $15,000: $315 to $375

While just slightly more sophisticated than your run of the mill savings account, treasuries offer a slightly higher yield with similar liquidity as a certificate of deposit. This government debt is available through the same brokerages an investor may use to buy stocks and mutual funds as well as directly through the Treasury’s retail website. While the value of these instruments can fluctuate slightly with changes in the economy and interest rates, keeping maturities to one year or less by using Treasury Bills, versus Notes or Bonds, is considered to be the equivalent of cash. Keep in mind, selling these securities requires one business day of settlement plus at least one business day to transfer the funds to your bank. However, for investors who are parking cash for more irregular needs, this can be a great option

As can be seen from the examples above, a little research and some effort to park cash in places with the best yield can make a significant difference for this portion of an investor’s savings. While no one will likely be cheering about a 2% yield when the stock market seems to climb higher every year to the tune of double-digit returns, for investors prudently keeping cash reserves safe from volatility every extra penny on their reserves is nice to have.

Interest rates quoted are current as of August 2018