News and Commentary

Where to Stash your Cash in a Low Interest Rate Environment By Joseph Karl, CFA

A unique phenomenon to come out of the pandemic has been a marked increase in the country’s personal savings rate despite record numbers of business closures and job losses. According to the Federal Reserve Bank, the personal saving rate in July 2021 remained elevated at 9.8 percent, down from a high of 26.6 percent in March, but higher than the 8.9 percent from February of 2020 and 6 to 8 percent range of the previous decade. Yet, with interest rates at record lows, it has become a challenge for savers to find a place to put their cash to work for them.

The average interest rate at brick-and-mortar banks was below 0.05 percent at the end of September. The rates at online banks, where annual percentage yields (APYs) of 2 percent could be found before the pandemic, are slightly higher but still less than 1 percent. In addition, the economy continues to feel some of the pricing and supply challenges from the past year, keeping inflation elevated but still in line with the Fed’s new target of 2 percent on average over time. While inflationary pressures are expected to cool, it is more than likely the central bank will keep rates at the lower bound through 2022, or longer, and only after it tapers its accommodative monetary policy of qualitative easing (QE).

Keeping significant savings in cash earning less than 1 percent during times of rising inflation provides very little rewards. Generally, in the search for more yield, you will need to take on more risk and sacrifice some liquidity. However, you can use those funds to your advantage without incurring additional risk by paying down debt, building an emergency savings fund to pay for all of life’s unexpected surprises, or gifting assets to heirs and removing them from your taxable estate. For example, you may gift give children or grandchildren the gift of higher education via a state’s prepaid college program, in which you pay today’s prices for future tuition.

If you will need to pay for a child’s education, you may invest some of your savings in a 529 savings plan for the benefit of a child or grandchild. Contributions you make today will be invested and grow tax-deferred until withdrawn for qualifying education expenses, including college tuition, room and board and tuition for elementary or secondary schools. Alternatively, you may use some of your cash to max out contributions to a retirement plan for yourself or your spouse, which can provide a tax deduction if the plan qualifies. Keep in mind that there are penalties for withdrawals that are not used for eligible education expenses.

On the opposite end of the risk/reward scale are investments in the public equity markets. Although equity investments can yield significant returns, especially over the long term, markets can be volatile in the near term. For this reason, the decision of how much to invest should be made only after projecting your cash and liquidity needs over the next 18 to 24 months. If your current cash position exceeds your expected liquidity needs, you may consider dollar cost averaging into equity markets. Doing so has the potential to provide returns above cash and can be a better hedge against inflationary pressures.

Amid third-quarter earnings season, the S&P 500 is up more than 15 percent year-to-date. Due to the current uncertainty surrounding the pandemic and the passage of the president’s economic proposals, we expect periods of volatility over the next few months, but we would consider any meaningful correction at this time to be a buying opportunity, especially over the longer term.

Finally, one of the best things you can do in any economic environment is to enlist the help of professional financial advisors to guide you in making decision that are best suited to your unique needs and goals, both today and far into the future. With an ever-evolving tax code, there will be times when a tax efficient investment strategy you established yesterday will no longer serve your needs today.

About the Author: Joseph Karl, CFA, is chief investment strategist with Provenance Wealth Advisors (PWA), an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs, and a registered representative with Raymond James Financial Services. For more information, call (954) 712-8888 or email

Provenance Wealth Advisors, 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.

Joseph Karl, CFA, is a registered representative of and offers securities through Raymond James Financial Services, Inc., Member FINRA/SIPC. Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors and Accountants. PWA is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of the advisors of PWA and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Every investor’s situation is unique, and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless of strategy selected.
Unlike bank deposits that offer FDIC insurance and a fixed rate of return, an investment’s share price and return fluctuate so that you may receive more or less than you originally invested when you redeem.

You should discuss any legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index.
Investors should carefully consider the investment objectives, risks, charges and expenses associated with 529 college savings plans before investing. More information about 529 college savings plans is available in the issuer’s official statement, and should be read carefully before investing.

Investors should carefully consider the investment objectives, risks, charges and expenses associated with 529 college savings plans before investing. More information about 529 college savings plans is available in the issuer’s official statement, and should be read carefully before investing.

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Posted November 17, 2021