As we all know, we certainly shouldn’t put all our eggs in one basket. With the recent uncertainty regarding interest rates combined with concerns over geopolitics and international trade changes, uncertainty has become prevalent. All of these factors mean there’s an increase in the volatility of the stock market. So, what can you do to protect yourself? Here are some suggestions, including moving some of your money into high-yielding bank accounts.
The Drawbacks of Cash
It’s likely tempting to keep all of your money in a safe place whenever the market seems volatile. However, cash will almost always underperform compared to other types of assets – especially over long periods of time. Plus, cash doesn’t even really keep up with inflation.
Brick and mortar banks are the worst, too. Many pay almost nothing, and the national average is just over 0.20 percent. However, there are FDIC-insured online banks that pay as much as 2.00 percent or more. That’s because they have lower overhead costs by not having physical branches.
The Upside to Keeping Money in the Bank
With cash being so vulnerable to inflation, you’ll certainly want to find the highest-yielding account you can. Additionally, you should ideally keep balances below the FDIC insurance limit of $250,000 as well. One of the nice things about online banks is they’re usually quick to adapt to rising interest rates. This better helps protect your funds when it comes to inflation.
Bonds vs. Online Savings Accounts
Just as stock prices rise and fall, investing in bonds can also come with certain risks. As interest rates rise, as does the potential for rising inflation, fixed-income investments can quickly lose value. That’s why it may be wiser to stick to short-term holdings. That, however, means lower yields. In some cases, it can be pretty close to what some online banks offer – and that’s on FDIC-insured savings accounts. Another plus side to a high-yield savings account is that it’s fully liquid as well.
Working Around the FDIC Limit
If you have more than $250,000, you can always set up accounts at more than one online bank. Plus, you can link those accounts to an existing checking account. That way, you can easily move money around when you need it.
Want to make sure you’re earning the best rate? Sites like Bankrate and Deposit Accounts will show you the top earners.