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High-Interest Cash Investments are a Silver Living Amidst the Housing Crisis; Here's Why

Explore high-interest options like high-yield savings, money markets and CDs for maximizing returns amidst rising mortgage rates.
Cover Image Source: Seize high-interest cash investment options (representative image) | Pexels | Photo by Pixabay
Cover Image Source: Seize high-interest cash investment options (representative image) | Pexels | Photo by Pixabay

Soaring mortgage rates and housing prices have made prospective homebuyers delay their purchase in hopes of a more favorable market. Amidst this uncertainty, a silver lining has emerged in the form of high-interest cash investments. The Federal Reserve's aggressive stance against post-pandemic inflation has catalyzed a surge in benchmark interest rates, prompting banks and credit unions to elevate their savings, money market, and CD rates. This means that individuals now have the chance to earn upwards of 5% on their down payment funds, with some record deposit rates even reaching 5.75% APY, per Investopedia.

Pexels | Photo by Tima Miroshnichenko
People can earn upwards of 5% on their down payment funds (representative image) | Pexels | Photo by Tima Miroshnichenko

High-yield savings accounts have become increasingly popular among individuals looking to optimize their savings strategies. These accounts offer notably higher interest rates, which are often up to 10 to 12 times more than those of traditional savings accounts. This significant difference in interest rates presents an appealing opportunity for savers to increase the returns on their deposited funds. Many of these accounts are provided by online banks, leveraging the competitive landscape of online banking to offer elevated interest rates.

Additionally, high-yield savings accounts offer convenient options for transferring funds. Electronic transfers between high-yield savings accounts and checking accounts, even when held at different financial institutions, have become seamless. Furthermore, like traditional savings accounts, high-yield savings accounts are federally insured by the FDIC or NCUA. This means that deposits in these accounts are protected against bank or credit union failures, providing individuals with peace of mind regarding the safety of their savings. With federal insurance coverage extending up to $250,000 per account, savers can confidently deposit their funds knowing that they are safeguarded against unforeseen circumstances.

With low minimum balance requirements or even no minimum at all, money market accounts are vying for attention in a competitive landscape. Offering the added advantage of check-writing capabilities, money market accounts provide flexibility without sacrificing returns. A money market account is a type of interest-bearing deposit account that individuals can open at banks and credit unions. Similar to savings accounts, money market accounts serve as a secure option for individuals to store their savings. 

Pexels | Photo by John Guccione
Pexels | Photo by John Guccione

Money market accounts typically offer competitive interest rates, making them an attractive option for individuals seeking a predictable yield on their savings. Moreover, these accounts are federally insured, providing an added layer of security for deposited funds. One advantage of money market accounts is their flexibility in terms of withdrawals. While traditional or online savings accounts may have limitations on withdrawals, money market accounts generally offer more options for accessing funds. It's also essential to note that money market accounts typically have a limit of six withdrawals per month and are not intended to replace a checking account.

Certificates of Deposit (CDs) are a popular choice among savers seeking to maximize returns on their deposits. These financial instruments offer fixed interest rates on deposited funds for agreed-upon periods, typically paying higher rates compared to standard savings or money market accounts. CDs are available from both banks and credit unions and are characterized by their fixed terms and guaranteed returns. While similar to savings and money market accounts in their function as safe havens for funds, CDs differ in their deposit requirements and withdrawal restrictions. Unlike savings or money market accounts, which allow flexibility in deposits and withdrawals, CDs require a single initial deposit that remains untouched until the CD matures. CD rates are influenced by various factors including the Federal Reserve's rate-setting actions. The federal funds rate set by the Federal Open Market Committee (FOMC) directly impacts the interest rates offered on CDs by banks and credit unions. When the federal funds rate rises, CD rates tend to increase as well, providing savers with higher returns on their deposits.