Are You Getting the Yield You Should Be?

Recently, we have seen a rise in interest rates that hasn’t always translated to higher interest rates on traditional bank deposits. As interest rates on traditional bank accounts remain low, many affluent savers may wonder where they can find better returns on their savings. Fortunately, several alternatives available through brokerage accounts can provide higher yields without sacrificing safety or accessibility.

Higher Yield Options

A money market fund, which invests in short-term, high-quality debt securities and aims to maintain a stable net asset value of $1 per share, is a higher yield option for many people. Money market funds can offer competitive yields with short-term interest rates, making them popular for investors seeking liquidity (ability to withdraw cash) and capital preservation (an investment strategy where the primary goal is to preserve capital and prevent loss in a portfolio).

Another alternative is a certificate of deposit (CD) ladder, which involves buying multiple CDs with staggered maturity dates. By spreading the investment over several CDs, investors can earn higher interest rates on longer-term investments while still having access to funds as each CD matures. This strategy can also help mitigate the impact of rising interest rates on a portfolio. A brokerage account can allow you to buy CDs from multiple banks in the same account, increasing FDIC availability for larger depositors.

For investors with higher risk tolerance, bond funds may be a viable option. Bond funds invest in various fixed-income securities, such as government, corporate, and municipal bonds, and can offer higher yields than money market funds or CDs. However, it's important to note that bond funds can be subject to market fluctuations and may not be suitable for all investors.

Why Is the Return So Small from Traditional Banks?

Banks seek to keep the yield on deposits low for a few reasons. Since banks use the funds deposited in accounts to make loans, lower interest rates on loans can make them more attractive to borrowers. Additionally, banks can use the funds to invest in other financial instruments, and lower interest rates can make these investments more profitable.

Furthermore, banks are subject to regulatory requirements that impact their ability to pay higher interest rates on deposits. For example, the Federal Reserve sets the federal funds rate, which influences the interest rates banks pay to borrow from each other. When the federal funds rate is low, banks may have less room to offer higher rates on deposits without hurting their profitability.

Explore the Alternatives

Ultimately, banks operate in a competitive market and must balance the desire to attract deposits with the need to maintain profitability. This can result in lower yields on traditional deposit accounts, which may prompt investors to explore alternative options through brokerage accounts. The best choice depends on each investor’s financial goals, time horizon and risk tolerance. By working with a financial advisor, investors can evaluate their options and find the best way to earn attractive returns on their savings while managing risk and maintaining liquidity.

David Jackson, MBA, CFP®, C(K)P™, is the Managing Partner at the Southern Springs Capital Group. For more information on Southern Springs Capital Group, visit www.southernspringscapital.com. Our offices are located at 2555 Meridian Boulevard in Franklin. We can be reached at 615-905-4585.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Southern Springs Capital Group is not a registered broker/dealer and is independent of Raymond James Financial Services.

Any opinions are those of Southern Springs Capital Group and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance is not indicative of future results. Diversification and asset allocation do not ensure a profit or protect against a loss.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow”, is an index representing 30 stocks of companies maintained and reviewed by the editors of the Wall Street Journal. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.

Investment products are: Not deposits. Not FDIC or NCUA Insured. Not guaranteed by the financial institution. Subject to risk. May Lose Value.

Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, and CFP® (with plaque design)in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.