Making Money on Cash
Nearly a year ago, the Federal Reserve embarked on the fastest interest rate hiking program in its history. Last year this presented a challenge to all asset classes except one—cash. While the investment market is rebounding nicely this year for stock and bond investors, what about making money on your cash savings?
For years, savers have received paltry returns for their savings, but the Federal Reserve changed that last year as they aggressively raised rates. At Riggs, we have been taking advantage of this opportunity by moving cash into a U.S. Government and Treasury Money Market, yielding well over 4%. We believe this yield will continue to rise as the Federal Reserve continues to raise rates to fight inflation.
Money market investments offer a number of advantages for people looking to save and grow their money. They provide higher earning potential than traditional bank savings accounts, with competitive interest rates that can be up to 10 times higher. The money market we use at Riggs is fully liquid, so there is no fixed holding term (like a Certificate of Deposit may have), and the minimum investment is as low as $1. In essence, you have a fully liquid home for cash, earning more than 4% annually. This is an opportunity for individual savers but also for businesses that hold large cash balances.
Finally, while banks offer FDIC insurance limited to $250,000 per individual depositor, Schwab and TD Ameritrade provide Securities Investor Protection Corporation (SIPC) insurance. SIPC provides up to $500,000 of protection for brokerage accounts held in each separate capacity (e.g., joint tenant or sole owner), with a limit of $250,000 for claims of uninvested cash balances (money markets would fall under the $500,000 protection limit). In addition to SIPC protection, Schwab and TD have purchased additional insurance for accounts through underwriters in London. Their coverage with Lloyd’s of London and other London insurers, combined with SIPC coverage, provides protection of securities and cash up to an aggregate of $600 million and is limited to a combined return to any customer from a Trustee, SIPC, and London insurers of $150 million, including cash of up to $1,150,000. This additional protection becomes available if SIPC limits are exhausted. This provides an additional layer of security and peace of mind to Riggs clients, who often ask us to open up a cash account for them to park their significant savings balances. With a Riggs account, we can set up electronic moneylink so that you can easily transfer money from your Riggs account to your bank account when you need it.
For savings that you want to hold long-term but in low-risk instruments, we are utilizing U.S. Treasury securities where 1-year U.S. Treasuries are now yielding 5.24% (as of March 8, 2023). Regardless of where you place your cash, the point is to remember that we are in a period where you can make money on that cash, and we recommend that all of our clients take advantage of that opportunity.