Where to put money in 2023 as savings yields jump

Savers wondering where to put money in 2023 got an unusual opening from the Federal Reserve’s long run of rate increases: borrowing grew more expensive, but deposit accounts began paying far more than many households had seen in years.

The shift came as inflation cooled from its peak while remaining elevated. The Fed’s campaign of rate hikes over 17 months raised costs on credit cards, personal loans and mortgages, while also lifting yields on lower-risk savings products such as high-yield savings accounts and certificates of deposit.

Where should you put your money in 2023?

The answer depends on three plain factors: yield, access to cash and what the money is for. Emergency savings, tuition money, retirement cash and funds earmarked for a near-term purchase may all belong in different places.

High-yield savings accounts were one of the clearest winners from the rate environment. The Federal Deposit Insurance Corporation listed the average savings account rate at 0.42%, while online high-yield savings options were commonly showing yields from 4.30% to 5.50%.

James Allen, a certified public accountant and founder of Billpin, said high-yield savings accounts can suit emergency funds and short-term goals because they offer stronger interest than regular savings accounts while keeping the money easy to reach.

The higher payouts are often tied to online banks’ lower operating costs. Without a branch network to maintain, many online institutions can offer annual percentage yields well above the national savings average.

How CDs fit the moment

Certificates of deposit offer a set return for money left in the account for a fixed term, commonly from one month to five years. They can appeal to savers who think rates may fall because the rate is locked when the CD is opened.

The tradeoff is access. Pulling money out before the term ends can trigger an early withdrawal penalty, often taken from interest earned. Chase, for example, lists a penalty of 365 days of interest on the amount withdrawn early from a CD with a term of two years or longer, though the penalty will not exceed the interest earned during the current CD term.

Chad Willardson, founder and certified financial fiduciary at Pacific Capital, advised savers to check that a CD’s term will not clash with planned expenses, including retirement needs or college tuition.

Money market accounts add flexibility

Money market accounts mix features of savings and checking accounts. They pay interest and may also allow check writing or ATM withdrawals, giving savers more access than a CD without the same early-withdrawal issue.

These accounts can pay more than traditional checking and savings accounts and are available through banks, credit unions and online banks. Allen cautioned that many require a higher minimum balance, so savers who cannot keep that amount in the account may be better served by a high-yield savings account.

Other places experts cited

Willardson also pointed to U.S. Treasuries, saying they were paying rates higher than had been seen in a long time and could keep money in a secure place at a time when bank stability was on investors’ minds.

Paul Tyler, chief marketing officer of Nassau Financial Group in Hartford, Connecticut, said people nearing retirement may consider multi-year guaranteed annuities. According to Tyler, they often pay higher rates than banks and may allow access to part of the money early without penalty, though they can require a longer holding period.

The practical call is to match the account to the job. A high-yield savings account or money market account may work for cash that needs to stay flexible, while a CD may fit money that can be parked for a set period in exchange for a fixed rate.

This story draws on original reporting from CBS News.