The Federal Reserve 's decision to hold interest rates steady was good news for Americans holding cash. On Wednesday, the central bank left the federal funds rate between 3.5%-3.75%, after cutting rates by a quarter percentage point in December. "No change to the federal funds rate means borrowing costs on short-term and variable-rate loans are not heading lower yet," said certified financial planner Stephen Kates, a financial analyst at Bankrate. "Likewise, yields on savings products such as high-yield savings accounts and CDs are likely to remain unchanged for now." While rates are down from their highs — money market funds yielded 5.2% back in November 2023 — they are still above where they once languished for decades. For instance, the annualized seven-day yield on the Crane 100 list of the largest taxable money funds is 3.5%, as of Tuesday. That's the lowest level since November 2022 — but rates were below this level for 14 years before then, said Peter Crane, founder of Crane Data, a firm that tracks money markets. Still attractive Importantly, money market funds remain attractive relative to bank savings accounts — which is why so many people have flocked to them, Crane said. By comparison, the national average for savings accounts stands at an annual percentage yield of 0.61%, according to Bankrate . "The gap in rates is still gigantic," Crane said. Plus, if the Fed does eventually cut rates, the yields are annualized. "Any yield you are losing isn't going to impact you for quite some time," he said. Some of the largest money market funds still have yields ranging between 3.3% and 3.63%. Winnie Sun, co-founder and managing director of Irvine, California-based Sun Group Wealth Partners, prefers money market funds and certificates of deposits for her clients' cash. These days, she is upping the amount of liquidity for those who work in industries where job prospects may feel uncertain. "Now, we're pushing to 12 months, and because not only do we want to cover potential layoffs, but many of our clients are now feeling more comfortable with having more liquidity in case they need to downsize or make changes to their lifestyle," said Sun, a member of the CNBC Financial Advisor Council . She also likes to have 5% to 20% held in cash instruments inside investment portfolios so clients can take advantage of any buying opportunities. With CDs, Sun prefers a six-month ladder. In other words, she staggers maturities up to six months, so income is available at different times and clients can still lock in some yield. Investors typically face penalties if they try to withdraw funds before the CD matures. The Marcus account at Goldman Sachs is offering six-month CDs with a 4.05% APY, while Bread Financial pays 4%. For those who want to lock in rates for a bit longer, one-year CD rates vary, with Marcus by Goldman Sachs and Sallie Mae both offering APYs of 4%. In addition, investors can buy short-term Treasury exchange-traded funds. For instance, the iShares 0-3 Month Treasury Bond ETF (SGOV) has a 30-day SEC yield of 3.59% and an expense ratio of 0.09%, while Vanguard's 0-3 Month Treasury Bill ETF (VBIL) has a 3.57% 30-day SEC yield and 0.07% expense ratio.
