The Wall Street Journal
Cash is regaining some of its sparkle.
With the Federal Reserve leaving short-term rates unchanged last week, many financial planners are recommending that clients put their extra money into short-term securities and high-yielding savings accounts to boost their returns.
That’s a shift from last fall, when money managers were moving into longer-term investments to lock in still-favorable yields. Banks, too, are beginning to change course. After trimming yields on cash accounts last fall, some banks are bumping up rates again to lure deposits.
Early last week, for example, HSBC Direct, boosted the promotional rate on its online savings account to 6 percent on new deposits until the end of April, from 5.05 percent.
Mark Rosenberg of Beverly Hills, Calif., prefers high-interest money-market accounts to certificates of deposit because the difference in yields between the two has been ”very, very negligible.” ”And if interest rates go up, my money-market accounts also go up,” says the 48-year-old real-estate broker and lawyer.
Another advantage of moving to more-liquid investments: Doing so can give you the flexibility to quickly move into higher-yielding securities if and when interest rates start to move higher.
A raft of stronger-than-expected economic data and shifting rate expectations are spurring the move toward cash. Oil and gas prices have retreated, easing concerns over a slowdown in consumer spending. Sales of new homes increased in December for a second consecutive month, raising hopes that the worst of the housing downturn could be coming to an end. Meanwhile, the unemployment rate is still relatively low, and the manufacturing sector is proving to be healthier than expected.