Question: I’m retiring in a few years and want to reallocate around $100,000 to a less risky investment. Which savings account would work best for me?
Answer: There are several solutions where you can earn thousands of dollars risk-free in a year. Two of the most popular choices are jumbo CDs and high-yield savings accounts.
Which one would work best for you? I’ll break down when to use each and which one earns you the most cash.
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A flexible option that keeps your cash accessible
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The first factor you should consider is whether you’ll need access to any of the $100,000 within the next year. If you do, or want the flexibility to reinvest in something else in a few months, then I recommend a high-yield savings account.
What I like about them is that you can earn healthy rates of up to 4.20% APY with online banks with no fees. This allows you to maximize your cash in a quick window. You’ll also receive FDIC insurance with many banks, protecting your investment up to the first $250,000 deposited per account holder.
Use this Bankrate tool to shop for the right savings fit:
Why now: The Iran War increased gas prices by 20%, so it’s safe to say the cost of everyday goods will rise. David Payne of the Kiplinger Letter notes that even if gas prices revert to where they were, he thinks inflation will rise to 3.0% by the end of the year on account of rising healthcare costs and tariffs’ impacts.
If the Fed cuts rates later this year and inflation continues to rise, it’ll squeeze your earnings. With a HYSA, you won’t have to worry about any early termination fees. You can make adjustments as needed, keeping you ahead of the game so you don’t feel the pinch.
A commitment worth sizable gains
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Another option to consider is a jumbo CD. A jumbo CD has many of the same rules as a regular CD in that you can’t withdraw your deposit before the maturity date, unless you want to pay an early termination fee amounting to a few months of earned interest.
Moreover, as its name implies, jumbo CDs are reserved for larger deposits — think $50,000 to $100,000 minimums. The good news for investors is that these CDs have quicker maturity (terms range from six months to one year), making them a good short-term strategy if you’re looking to reallocate some retirement funds to less risky ventures.
Use this Bankrate tool to compare and find the best CD options for you:
Why now: The Federal Reserve will have a new chair in May. President Donald Trump nominated Kevin Warsh to the post. Provided the Senate approves his nomination, he’ll take over for Jerome Powell. If they don’t, Powell will fill in on an interim basis.
This matters because Warsh has stated previously that interest rates should be lower. However, the Fed has a delicate balancing act as inflation continues to rise and the job market continues to be weak, so there might not be a rate cut this year. Even with the uncertainty, now is a great time to lock in one of the highest APYs without having to worry about Fed policy.
Which savings account earns me more?
Here’s how much you can earn with each savings option:
|
Account |
Type |
Deposit |
APY |
1-year earnings |
Early withdrawal penalties |
|---|---|---|---|---|---|
|
HYSA |
$100,000 |
4.20% |
$4,289.20 |
No |
|
|
jumbo CD |
$100,000 |
4.35% |
$4,350 |
A few months of interest earned |
Using this example, a jumbo CD will earn you the most money. It’s also the ideal option if you don’t have cash flow issues since it features a fixed interest rate, allowing you to maintain higher earnings even if the Fed cuts rates later this year.
However, as you can see, the earnings difference isn’t substantial. Either way, you’re going to earn at least $4,000 effortlessly in a year with access to your cash. Therefore, your cash liquidity and short-term goals will direct the course to help you choose the best option for your needs.