Favorable Short Term Interest Rates

Over the last decade, we have begun to expect lower interest rates on our monthly savings and money market accounts. With short-term interest rates near zero(1), savers and investors were forced into longer term or lower quality bonds to get better yields. The good news for them is that conditions have drastically changed.

If you have a large amount of money sitting in a checking or other low-interest account, you may be surprised to find out just how much more income you could realize by exploring other options.  Rates paid on FDIC-insured bank money market accounts, in some cases, are as high as 2.3%.  And there are other low-risk options available which may be even more attractive, as set forth in the table below:





Floating Rate Treasuries

Floating Rate Loans

Ultrashort Treasuries

2-yr Treasuries

2-yr FDIC-Insured CDs

Short-Term Investment Grade Corporate

2-yr A Corporate

2-yr BBB Corporate

Short-Term High-Yield Corporate





























Source:  iShares Fact Sheet by Blackrock  03/31/2019

Duration is partially a function of the length of time for a bond to mature, and it is used to help measure interest-rate sensitivity.  Longer duration securities are prone to greater loss in the event of an increase in market interest rates.  For example, say you purchase a long-term Treasury bond with a duration of 10 years. If interest rates increase 100 basis points (1%) during that time period, your Treasury bond would lose 10% of its market value. The table above only looks at securities with more limited interest-rate risk.  So, all else equal, an instrument with a duration of 2 years is only at-risk of losing 2% in the 100 basis point rising scenario.

One of the most conservative fixed income instruments you can own are floating rate treasuries. They are a relatively new and somewhat ignored segment of the fixed income landscape, having been in existence only since 2014.  Like all Treasuries, they are guaranteed by the government to be repaid principal and interest at maturity.  For these floating-rate securities, however, the advantage in terms of risk is that their interest rate resets on a weekly basis, so as interest rates go up and down the yield changes accordingly, with little exposure to market value volatility. A yield of 2.4% currently makes these securities especially attractive.  As the table shows, floating rate treasuries currently carry an even higher yield than Ultrashort (less than one year) and 2-year treasuries.  All these securities can be purchased directly or via a portfolio of securities within an exchange-traded fund (ETF) or mutual fund.

Floating rate loans, which can also be purchased within and ETF or mutual fund and also constantly adjust their rates in conjunction with market rates, are another investment option to avoid interest-rate risk.  However, since these securities are issued by corporations (and in many cases less financially stable ones, at that) you are subject to a greater degree of credit risk, or uncertainty as to the ultimate payment of principal and interest.

Rates on Bank CDs vary from bank to bank, with some currently paying as high as 2.5% for two years.   Although issued by banks, they still have the backing of the US government’s FDIC insurance.  They are typically harder to sell, so investors receive a little higher yield than more liquid Treasury securities.

Moving further up in yield, but also further out on the credit risk spectrum, brings us to short term investment grade and high yield corporate bonds.  Investment grade corporate bonds are rated BBB or better by the various credit rating agencies. Although these bonds of all levels of quality produce greater income than treasuries of comparable maturity, this yield advantage is currently not as attractive as it has been historically on average.  As a result, the conservative haven of treasuries continues to look relatively attractive in our view.

After several years of near-zero short-term rates, investors are now at last presented with a series of attractive choices in terms of places to park their cash reserves.  We can help you explore which options work best for your financial plan. Give us a call if you have questions.

Written by Kevin Fruechte, Olson Wealth Group

Olson Wealth Group is a full service wealth management firm. With wise counsel and clear strategies, our experienced specialists provide tailored approaches that strive to maximize wealth. For more information, please visit

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC. Registered states include: AR, AZ, CA, CO, FL,GA, IA, IL, IN, MA, MD, ME, MI, MN, MO, MT, NC, ND, NV, NY, OH, OR, PA, SC, SD, TX, VA, WA, WI, WY. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for any individual.

Bonds are subject to availability and change in price. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. No strategy assures success or protects against loss. Investing involves risk including loss of principal. Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. Floating rate bank loans are loans issues by below investment grade companies for short term funding purposes with higher yield than short term debt and involve risk.

  1. Monthly Market Monitor; Eaton Vance, April 2019


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