As interest rates go up, should you keep more cash?
Maybe you’ve noticed: Interest rates for savings accounts are going up. This makes cash investments more appealing.
The average annual interest rate for a 1-year CD right now is about 2.40 percent, according to Bankrate.com.
You can find 5-year CD's paying as much as 3.25 percent APY.
The best high-yield checking accounts are paying 2.05 percent.
Historically, stocks and bonds have higher returns over time, but they also have significant risk.
So, as interest rates rise, should you keep more in cash?
“Well, it certainly makes more sense now than it did a few years ago with savings rates online,” said Matthew Frankel, who writes personal finance and investment advice for The Motley Fool. “Cash gives you the flexibility to take advantage of any opportunities as they come up."
Frankel said he’s reacting to the higher interest rates by shifting some of his bond holdings into cash.
“For example, I generally keep a 70 percent to 30 percent stock-to-bond allocation. And now, it's more like 70 percent stocks, 20 percent bonds and 10 percent cash – that's earning close to 2 percent.