4 Smarter Ways To Earn More on Idle Cash, According to Rob Berger
When you set aside money for an emergency fund or upcoming taxes, a checking or savings account that offers little or no interest isn't your only option.
In a YouTube video, personal finance expert Rob Berger shared what he believes are the best places for parking cash.
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Vanguard Federal Money Market Fund
The first option Berger suggested is a Vanguard Federal Money Market Fund, or VMFXX. Money market funds are low risk and offer competitive yields. Your cash is also relatively easy to access if needed.
Berger pointed out that you need a Vanguard account to invest in this fund, which may be inconvenient if you hold investments elsewhere. Investing money across multiple brokerage firms can make it harder to track your accounts and get an overall picture of your investments.
Fidelity Money Market Funds
Fidelity customers have a couple of investing options, including the Fidelity Government Money Market Fund or SPAXX, said Berger. He said that he owns this fund and remarked that it’s one of the default choices available through Fidelity’s Cash Management Account. He explained that if you hold SPAXX in a Fidelity Cash Management Account and write a check, Fidelity will automatically sell enough shares to cover it.
Berger also mentioned the Fidelity Money Market Fund Premium Class, or FZDXX, as an option. However, because the fund requires an initial investment of at least $100,000, it won’t work for everyone, he said.
Short-Term Treasury ETFs
Berger also mentioned short-term Treasury exchange-traded funds (ETFs) as a place to keep cash. An ETF pools a group of investments into one fund that you can buy and sell through a brokerage account.
Berger highlighted funds that invest in Treasury securities with very short maturities, including an iShares fund holding Treasuries with maturities of up to three months and a similar Vanguard option.
Berger said you can usually purchase ETFs through any brokerage.
He pointed out that ETFs aren’t as convenient as money market funds when you need to spend the cash. If you hold a Treasury ETF in a Fidelity Cash Management Account, for example, Fidelity won’t automatically sell those shares to cover a check, he said. Instead, he explained that you would need to sell the investment first and allow time for the cash to become available.
Treasury Bills
Another option, according to Berger, is buying Treasury bills. T-bills are short-term government securities that offer a safe way to earn a return. Also, any interest earned is exempt from state and local income taxes.
Berger mentioned four-week Treasury bills as an option, but said he would personally lean toward a short-term Treasury ETF of up to three months because he considers it easier to manage.
Treasuries also have a potential tax advantage. Berger noted that income from Treasury bills and bonds isn't subject to state income tax, which could be an advantage depending on where you live.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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