When interest rates rose significantly in 2022, it changed the calculus for idle cash. Keeping large balances in checking for bill pay and convenience often means missing out on materially higher yields available elsewhere. Here are four practical, higher-yield alternatives to consider, along with trade-offs in liquidity, risk, and usability.
1) High-Yield Savings Accounts
A high-yield savings account offers a substantially better rate than a typical checking account while preserving daily liquidity. Many banks and credit unions now tier their rates by relationship status or combined balances.
Why consider it
- Often dramatically higher yield versus checking.
- Easy transfers to and from checking for bills and monthly expenses.
- Generally FDIC/NCUA insured up to applicable limits.
What to watch
- Rates are variable and can change at any time.
- Top tiers may require higher balances or combined household accounts.
- Promotional rates can expire; set reminders to review.
Good for: Emergency funds and planned near-term expenses where same- or next-day access is important.
2) Certificates of Deposit (CDs)
CDs can offer a modest yield premium over savings accounts in exchange for locking money up for a specific term (e.g., 3, 6, 12 months+). They’re designed for cash you won’t need until a known date.
Why consider it
- Potentially higher fixed yield for the chosen term.
- Generally FDIC/NCUA insured up to applicable limits.
- Useful when you know you won’t need funds until maturity.
What to watch
- Less liquid: early withdrawals typically trigger bank penalties.
- Auto-renew risk: CDs may roll into a new term at maturity if you don’t act; set calendar reminders.
- Term mismatch: choose maturities that align with your cash needs.
Good for: Known cash needs on a future date (e.g., tuition, taxes) where you’re comfortable trading some liquidity for a higher, fixed rate.
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3) Money Market Funds (in Brokerage Accounts)
In investment accounts, default “sweep” vehicles may pay minimal interest. A money market fund (especially a government or Treasury money market fund) invests in very short-term, high-quality securities and can be a higher-yielding alternative for idle brokerage cash.
Why consider it
- Typically higher yield than default sweep cash in many brokerages.
- Very high liquidity; generally same-day access within the brokerage.
- Conservative exposure focused on short-term government and high-quality instruments (fund-dependent).
What to watch
- Not bank deposits and not FDIC insured. Funds seek to maintain a $1 NAV but it isn’t guaranteed.
- SIPC protects custody, not market value; expense ratios apply and are netted from yield.
- Know your fund type (government/treasury vs. prime) and its investment guidelines.
Good for: Parking cash inside a brokerage account between investments while seeking a competitive yield.
4) Individual U.S. Treasuries
Buying individual Treasury bills or notes lets you choose a specific maturity and see the yield to maturity up front. If you hold to maturity, you know exactly what you’ll receive.
Why consider it
- Transparent yield and maturity date at purchase.
- No bank-style early withdrawal penalty; you can sell prior to maturity if needed.
- Interest is generally exempt from state and local income taxes (federal taxes still apply).
What to watch
- If sold before maturity, price can be higher or lower than your purchase (market risk).
- Settlement and access are via brokerage or TreasuryDirect; understand how proceeds move to checking.
- Match maturities to your timeline so you’re not forced to sell early.
Good for: Savers who want a known yield and date-specific cash returns, and who can align maturities with upcoming needs.
How to Choose Among the Options
- Liquidity needs: Keep bill-pay and immediate cash in checking; move excess to high-yield savings for quick access; use CDs or Treasuries for funds with defined timelines.
- Yield vs. flexibility: CDs and some Treasuries may pay more, but savings and money market funds offer easier access.
- Account location: Bank cash fits savings or CDs; brokerage cash often fits money market funds or Treasuries.
- Operational details: Watch for CD auto-renewals, variable savings rates, money market fund types, and expense ratios.
Pro tip: Treat your cash like any other investment. Review it periodically as rates and your needs change, and rebalance to keep idle money productive without compromising access.
Want a Smarter Plan for Your Idle Cash?
McCabe & Associates works closely with affluent families, business owners, and widowed individuals to tailor cash strategies that balance yield, liquidity, and safety within your broader financial plan. Contact us today for a second opinion on your financial situation.
