Cash Is Not Trash

Quote

“Formal education will make you a living; self-education will make you a fortune.” - Jim Rohn

Cash Is Not Trash

Cash is no longer trash. Scream it from the rooftops, put it on the billboards across town, and run the ad in Times Square, it’s happening.

After being told “have fun staying poor” over the last few years for not investing every dollar to your name, cash reserves are finally being rewarded.

Thanks to inflation hotter than a south Texas summer, we have seen the fed hike rates over the last few months. Despite the jump in rates tanking the Nasdaq and marking the end of the laser eye profile pic era, there is a positive. Rates on “cash” accounts have increased and are providing a great place to store your precious Benjamins.

This piece is going to cover the difference between CDs, TBills, IBonds, and High Yield Savings Accounts. There are a lot of similarities between these, but depending on your situation, one might be the more appealing.

Let’s get into it. 👇️ 

IBonds

In simple man’s terms, these are loans backed by the US government. The current yield for these bad boys is 6.89% annually. That means $10,000 would reward you $689 in interest.

Pros

• Low risk

• No state/local tax

• Better rates than CDs, treasuries, and HYSA

Cons

• Limited to $10k/year

• Rate changes every 6 months

• Have to hold for a minimum of 1 year or have an early sell penalty. If you cash in the bond in less than 5 years you lose the last 3 months of interest.

CDs

No, for you kids out there, this isn’t the circular disk thing buried in your console with“George Strait’s 50 Greatest Hits” written on top. The CDs we are talking about in this piece refer to certificates of deposit.

There are two types of CDs. Bank CDs and brokered CDs. As you’d expect, one is offered by banks and the other by your brokerage (typically offers higher interest). Here is a good article breaking down the differences between the two.

Pros

• Low Risk

• Locked in rate

• No auction time frame

• FDIC insured up to 250k (can go above this with brokered CDs)

• Higher rates than HYSA and banks

Cons

• Subject to state/local income tax

• Penalties for early withdrawals

• Some CDs are callable

• Less liquid than savings

I’ve opened a new account with Fidelity to take advantage of their CDs. Here is a screenshot of the latest rates on their platform. (They also offer fractional CDs)

Treasuries

Unfortunately, you don’t find these where “X marks the spot.” Treasuries are a fixed-income security and once again you are lending the government money. In appreciation for being such a great citizen (lol), they offer a small return in interest on your capital.

Fun fact on the naming of treasuries. Tbills have less than one year to mature. Tnotes have terms of 2, 3, 5, and 10 years. Tbonds are for 30 years are more.

Pros

• Low risk

• Locked-in rate

• Not subject to state/local income tax

• Higher rates than HYSA and banks

• Can be sold on secondary market

Cons

• Small learning curve to purchase

• Often lower rates than CDs

• Interest is only paid when the bill matures

The big thing with treasuries is that they are exempt from state income tax. 

This can be a huge factor depending on where you live. Here is a super helpful calculator that can be used to compare the interest rates of CDs and treasuries.

High Yield Savings Accounts

Last but not least are HYSAs. These actually sound like what they are unlike the other scrubs on this list so there isn’t much explaining to do here.

HYSA are savings accounts that pay you interest. Typically online banks like Ally (3.3%) and Wealthfront (3.8%) will offer higher rates compared to mainstream physical locations.

Pros

• Instant liquidity

• Free withdrawals (might be limited)

• Higher rates than physical banks

Cons

• Rates not locked in

• Lower rates than CDs, Treasuries, and Ibonds

What am I doing?

As you might have seen on Twitter, I opened a separate Fidelity account for my “cash” investments. Current plans are to invest in a 3 and 6 month CD, and take advantage of the 3.8% (after fees) offered by Fidelity’s money market account SPAXX.

In the meantime, I plan to do more research on treasuries and expand into them in the future. I’ll be sure to keep you posted on my findings.

Conclusion

Before you take me to the cleaners on this article, yes, there are some fine details that were left out. As you readers know, we shoot for a balance of entertainment and education in these parts.

Ideally, this provides you with an idea of where you might want to park some of your reserves while rates are up.

Because we aren’t staying poor, and cash is no longer trash.

Cade's Finds

11 Things That 0% Interest Rates Caused - On the topic of interest rates, here is a fun email recapping the wild trends of 2020.

Big Tech Earnings - In case you missed the madness, here is a good video summing up the earnings of Google, Apple, and Amazon.

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Nothing in this email is intended to serve as financial advice. Do your own research. Thanks for reading, if you have any questions, comments, suggestions, etc. about the email send me a DM on twitter. See you soon!