Beyond the Bank: Five Other Places to Park Cash and the Catch in Each

A product with a fancy name is not better because of the name. It is better only if it fits a dollar with a job. Before you open anything, write one sentence: this money is for X, and I need it on Y. If you cannot write the sentence, you do not need the product yet.

This chapter covers who each option fits and the catch in each. It does not re-teach the basics. For account types, see the first chapter.

What is a T-bill ladder?

A Treasury bill is a short loan to the U.S. government. TreasuryDirect says bills run from 4 to 52 weeks, start at $100 and are sold at a discount. You pay less than face value and get the full face value at the end. The difference is your interest.

A ladder means buying bills that end on different dates. When one ends, you spend it or buy another. Say a made-up $10,000 bill costs $9,790 and has 182 days left. You earn $210, which works out to about 4.3% a year.

TreasuryDirect says bill interest is exempt from state and local income tax. It is still taxed by the federal government. Our chapter on Treasury interest and state tax shows when that exemption beats a higher CD rate.

The catch: rates at each auction can differ from the last. If you sell before the end date, the price depends on rates that day. A ladder fits money tied to a date, such as a tax bill due in January. See the bill ladder for a known date.

What is a brokered CD?

A brokered CD is a bank CD sold through a brokerage firm. It is insured by the FDIC up to $250,000 per depositor, per bank, if the issuing bank is insured. The SEC says that limit counts everything you hold at that bank, so check which bank issued it.

The catch is leaving early. At a bank, you pay a set penalty. With a brokered CD, you usually sell to another buyer. The SEC warns that if rates have risen, you may have to sell at a discount and lose part of your deposit.

Here is a made-up case. You buy a $10,000 CD paying 4% a year. Two years before it ends, new CDs pay 5%. A buyer will pay about $9,814 for yours, so you lose about $186.

The SEC also says the issuing bank, not you, can call a CD, which means end it early. That usually happens when rates fall, and you must reinvest at the lower rate. Our chapters on brokered CDs and callable CDs cover both.

What is a Treasury money fund?

A Treasury money market fund holds short-term Treasury securities. Its yield follows short-term rates, and you can usually move the money in and out within a day or so. It fits cash you already keep at a brokerage.

The catch: it is not a bank deposit. The FDIC lists mutual funds, which include money funds, as not insured. The fund also charges a yearly fee. At a made-up 0.20%, that is $40 a year on $20,000.

In 2023 the SEC removed the rule that let some money funds block withdrawals during stress. It added liquidity fees for some funds. The SEC says funds that are not government funds may charge one if their board decides it is in the fund's interest. Check your fund's own papers. Our chapter on money funds that pay more goes deeper.

What is a no-penalty CD?

A no-penalty CD lets you withdraw before the end date without the usual penalty, often after a short waiting period. It fits money that might be needed, such as an emergency fund, where you want a fixed rate with an exit.

The catch is in the terms. Waiting periods, minimums and what happens after a withdrawal differ by bank. Compare the rate with a regular CD of the same length, and with a savings account. See callable, step-up and no-penalty CDs.

What is a MYGA?

A MYGA, or multi-year guaranteed annuity, is a contract with an insurance company. You hand over a lump sum, and the company promises a fixed rate for a set number of years. It is not a bank product.

Read three things before you buy.

1. Simple or compounded. A quote of 5% simple interest for five years pays 25% in total. That is about 4.56% a year compounded. Ask which one the quote is.
2. Surrender charges. If you take money out early, the contract may charge a fee. Say a made-up 7% charge on a $50,000 withdrawal: that is $3,500.
3. Protection. The FDIC lists annuities as not insured. Instead, each state has a guaranty association. NOLHGA says most states cover annuities up to $250,000 and some cover more. California covers 80% of the value, up to $250,000. Check your state.

A MYGA fits money you are certain you will not need for the whole term. Ask a tax professional how the interest is taxed. See fixed annuities versus CDs and Treasuries.

Where should you go next?

If none of these fit a specific dollar and date, you are probably already in the right place. For most households, a good insured savings account and a simple CD cover the need.

You can also return to the chapter list in the guidebook menu to pick any chapter.

Limits of this guide.

• The prices, rates, the 7% charge and the $20,000 and $10,000 balances are made up. They are not current market figures.
• Product terms differ by bank, broker and insurer. Read the terms for the exact product.
• This is general information, not advice for your situation.