Higher interest rates mean you can make more money with cash. Here’s how

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Not long ago, it was common to earn low returns on cash – less than 1%.

But that changed after the Federal Reserve launched a series of interest rate hikes to curb inflation. Now investors may be earning up to 5% or more interest on their savings – the most they have earned in about 15 years.

“What I hear from advisors these days is the phrase, ‘This is real money now,'” said Michael Halloran, head of partnerships and business development at MaxMyInterest, a company that works with advisors and consumers to find the best interest rates on cash .

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According to Heather Ettinger, president of Fairport Wealth in Cleveland, Ohio, cash played a minor role in client discussions when interest rates were low.

“When I look at these numbers, I think to myself, ‘Wow, it’s not so bad to be sitting on some money,'” Ettinger said.

The more cash you have, the higher the interest rates can be.

Investors with portfolios of $1.5 million or $2 million could hold up to $300,000 or $400,000 in cash, Halloran noted. At 5%, that can bring in $25,000 to $30,000 per year. Over 10 years, that could add up to $300,000, he said.

Even more modest amounts of cash can still provide a meaningful return. A $50,000 cash reserve earning 5% interest would result in $2,500 in interest income over the course of a year, noted Steve Stelljes, president of client services at The Colony Group, which has offices in several states.

“Almost all of the money is in the wrong place”

But all savers are prone to the same mistake: they don’t invest their money in accounts that provide the best return.

Only one in five savers did it competitive interest rates of 3% or more on their cash, according to a Bankrate survey earlier this year.

Only 31% of those with incomes of $100,000 or more earned at least 3% on their cash.

Mistake 1: Not looking for the best prices

While many savers know they can get better interest on their money, it’s very easy to do nothing.

“Inertia is one of nature’s most powerful forces,” said Tim Harrington, certified financial planner and founder of Longview Financial Advisors based in San Rafael, California.

Harrington said he tries to explain to savers who hold large balances in low-interest-rate accounts that they lose purchasing power over time.

While a brick-and-mortar bank might offer 0.25% interest on savings, inflation is at 3.2%, according to the latest Consumer Price Index data.

“You should look around,” Harrington said.

Mistake 2: Having too much cash

Error 3: Insufficient FDIC coverage

https://www.cnbc.com/2023/09/10/higher-interest-rates-mean-you-can-earn-more-money-on-cash-heres-how.html Higher interest rates mean you can make more money with cash. Here’s how


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