U.S. savings bonds

Protect and optimize your cash in volatile markets | Viewpoint


In recent years, the prevalence of assets in U.S. cash (e.g., savings deposits) and retail money market funds have steadily increased from $15.4 trillion in February 2020 to $20.7 trillion in April 2023 (after peaking at $21.7 trillion in mid-2022).[1] Cash plays an important role in funding day-to-day living expenses, and holding cash may also help investors hedge against volatility in the stock and bond markets. Despite this, various cash-like investment alternatives are available for investors looking to seek out higher yields in the current environment.

Investors Return to Cash

In the wake of the Great Financial Crisis of 2008, cash accounts offered near-zero percent interest rates as the Federal Reserve Bank (the Fed) kept rates at record low levels[2]. Since March 2022, the Fed has raised the target Federal Funds rate ten times[3] to aggressively fight inflation. As a result, yields on bank accounts, Certificates of Deposits (CDs) and other cash-related assets have also increased, expanding the opportunity for investors to earn more interest on cash accounts. At the same time, markets have been volatile in response to the Fed’s actions and ongoing inflationary pressures. In today’s economic environment, it can be challenging to determine where to put your savings while balancing safety, risk tolerance, yields and liquidity.

Understanding Insurance Limits

U.S. banking institutions are regulated and insured by either the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA). Both agencies offer insurance protection on cash accounts of up to $250,000 per account owner and per ownership category. For example, a couple with a joint checking account is insured on up to $500,000 for the shared account, and each person could also receive $250,000 of coverage on individual checking accounts. Rather than opening several accounts at different banks, other cash-like investment vehicles may be worth considering to protect excess cash.

Savings Accounts

A widespread solution for excess cash is to open a standard savings account at your bank, which could be covered under FDIC/NCUA insurance up to the limits. These accounts are easily accessible, highly liquid, and can be tapped almost instantly to assist with daily spending needs. A standard savings account typically pays the lowest interest rate of the options discussed here, at an average of 0.39% as of May 2023.[4]

If you are looking to earn a higher interest rate, consider opening a high-yield savings account. Many financial institutions offer these accounts, paying more interest than traditional savings accounts. Be mindful that some of these high-yield accounts may have minimum deposit requirements to avoid low-balance fees, and are typically only available online. If you prefer banking in person or need consistent access to an ATM, a high-yield savings account may not be the right fit.


Most depository institutions offer CDs as an opportunity for investors to set aside cash at a higher fixed interest rate for a specific period of time. Common CD terms include three months, six months or one year, although a variety of terms may be available at your bank. CDs are covered by FDIC/NCUA insurance, but your cash invested is “locked up” for the term of the CD. Early withdrawals will typically result in a penalty, so it’s important for investors to be mindful of their time horizon when purchasing CDs. In order to hedge against short-term liquidity shortfalls, an investor could consider purchasing various CDs across a variety of terms, essentially creating a ladder of cash that becomes available at set intervals (e.g., every six months).

Money Market Mutual Funds

Money market funds available through an investment account can offer significantly higher yields than traditional bank accounts. Fundamentally, your investment in a money market fund means you hold a portion of a pool of assets that in turn invest in individual securities (e.g., typically very short-term, high quality debt instruments and other cash equivalents). The money market fund targets a $1 per share price. While money market funds can be attractive for their higher yields and low risk, the investments are not risk-free. The possibility of “breaking the buck,” or losing money in this historically safe investment, is present, but historically this has been an incredibly rare occurrence. There is no insurance coverage on money market funds, as your risk is tied to the underlying securities held by the fund. If the financial institution where you hold the money market fund goes bankrupt, you still own those underlying securities. The financial institution cannot take possession of your investment for their own use.

US Series I Savings Bonds

One cash-like investment that’s garnered a lot of attention among financial news outlets over the last 18 months is Series I Savings Bonds. These bonds (backed by the full faith and credit of the U.S. government) offer interest rates that are partially indexed to the rate of inflation. The rates are adjusted twice per year, which has been a benefit during this recent period of rising inflation. Yields on the I bonds peaked at 9.62% in mid-20225, though the yield has come down to 4.30% approximately one year later in May 2023 (as inflation has subsided). I bonds are much less liquid than the other options discussed above, as the bonds must be held for at least one year. After the first year, funds may be withdrawn but face a penalty if sold prior to the five-year mark. These bonds must be purchased through the Treasury Direct website and cannot be held within an investment or bank account. Each person may purchase up to $10,000 in I bonds per year, so depending on the amount of excess cash you are looking to invest, I bonds may not fulfill your goal all on their own.

Take Informed Action

In the digital age of banking, it’s never been easier to move cash among different accounts and investments. Before investing your cash in any of the vehicles discussed here, speaking with a financial advisor who can help you evaluate the various options in light of your near-term and long-term goals is advised. Each of these cash-like investments are slightly different with regards to access, liquidity and risk.

Being aware of FDIC/NCUA insurance limits can help you optimize your asset protection at the bank, and determine the amount of excess cash available to consider investing in other vehicles offering higher interest rates.  Generally speaking, an all-cash portfolio is likely not appropriate for long-term investors, as you’ll miss out on the potential for growth through stock and bond market returns. An experienced financial advisor will assist you in navigating through the cash-like investment options that best meet your unique needs and goals, as well as identify unintended illiquidity, penalties or other unforeseen consequences.

Andrea M. Ells, CFA, CFP®, is senior financial advisor, Cooper/Haims Advisors, an ESL Company.

Cooper/Haims Advisors is a wholly owned subsidiary of ESL Investment Services, LLC, a FINRA member broker-dealer.

The information is for general information only and not intended to be a substitute for individualized investment advice. We suggest that you discuss your specific financial scenario with a qualified investment advisor. All performance and economic forecasts referenced are historical and there is no guarantee of future results.

No strategy assures success or protects against loss.

CDs are FDIC insured to specific limits and offer a fixed rate of return if held to maturity, whereas investing in securities is subject to market risk including loss of principal

Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.

[1] “M2 and Components,” https://fred.stlouisfed.org/series/M2SL

[2] “Federal Funds Effective Rate,” https://fred.stlouisfed.org/series/FEDFUNDS

[3] “Open Market Operations,” https://www.federalreserve.gov/monetarypolicy/openmarket.htm

[4] “National Deposit Rates: Savings,” https://fred.stlouisfed.org/series/SNDR

5 “I Bonds Interest Rates,” https://treasurydirect.gov/savings-bonds/i-bonds/i-bonds-interest-rates/


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