I’m a financial planner, which is why investing in a high-yield savings account is better than a CD right now.

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As we move into 2023 and further away from pandemic-era savings habits and stimulus checks, the thinner Americans’ savings accounts are starting to show. A forecast from the Federal Reserve Bank of San Francisco has Americans draining their savings accounts by the third quarter of 2023 during the pandemic. That hasn’t happened, recent reports show, but it’s getting closer.

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According to data from the US Bureau of Economic Analysis, the personal savings rate fell to 3.9% in August 2023, less than half the decade-long average of 8.51%, CNBC reported.

If you’re among those looking at your dwindling emergency savings and wondering about the best steps you can take to boost it, financial planner Thomas J. Brock, CFA®, CPA, an Annuity.org expert contributor, shares some tips for the GOBANkingRates team. And not what you expect.

Financial experts recommend high yield savings on CDs

“In today’s high inflation and high interest rate environment, getting a competitive yield on your cash reserves is critical to maintaining your money’s purchasing power,” Brock said in an emailed statement. “For many people, the preferred savings vehicle is a certificate of deposit (CD) or high-yield savings account. I prefer the latter.”

Brock says he doesn’t expect short-term interest rates to drop anytime soon, so it doesn’t make sense to lock up your money in a CD for six months to a year or more.

“You can get higher yields with CDs, but the liquidity lock doesn’t justify the premium,” he said. “I’m very comfortable putting my money in a high savings account, the best of which are currently offering over 5.25%.”

Choosing the best high yield savings

When choosing a high-income savings account, you have many options, from online banks to traditional financial institutions. But there is one important thing to remember, says Brock. “[M]Be sure to only deal with members of the Federal Deposit Insurance Corporation. “This ensures your money is safe – up to $250,000 for individual accounts and $500,000 for joint accounts.”

If you choose a credit union, your money must be insured by the National Credit Union Administration (NCUA) up to the same amount. This credit union is the equivalent of the FDIC.

If you choose fintech, or neobank as it’s sometimes called, make sure your funds are backed by a chartered American bank to ensure FDIC protection. Even the financial services provider PayPal now offers a high-income savings account backed by Synchrony Bank. PayPal offers a 4.30% yield, which is competitive with many online banks and well above the national average, GobankingRates previously reported.

Brooke offers additional advice on what to look for when you’re ready to choose a financial institution. “When shopping for a high savings account, make sure you focus on more than just the interest rate,” he said. “Look for institutions that maintain robust, online platforms that make it easy to deposit and withdraw money quickly without incurring any fees.”

An alternative investment to consider

Brock suggests an alternative to a high-yield savings account. “I’m very comfortable putting my cash reserves into a US government money market fund, which is a professionally managed mutual fund with short-term US government securities and other obligations issued or guaranteed by the US government and its agencies,” Brock said.

Not to be confused with a money market account at a bank, which is similar to a savings account, US government money market funds are held in a brokerage account and are typically insured up to $500,000 by the Securities Investor Protection Corporation. (SIPC) As a savings account, you can withdraw your money anytime penalty-free.

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“These vehicles are as safe and affordable as the best high-yield savings accounts,” Brooks said.

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This article originally appeared on GOBANkingRates.com: I’m a financial planner, which is why investing in a high-yield savings account is better than CDs right now.

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