From 2022 to 2024, investors in savings and money market accounts have enjoyed historically high annual returns, peaking above 5.5% in mid-2024. Nearly $7 trillion nationwide is currently in money market accounts – they are liquid, widely considered reasonably safe, and the higher yields have made them a stellar investment option for liquidity planning and conservative (risk-averse) investors.

Shortly after the 2024 peak, the Fed reversed its direction and began cutting rates on September 18, 2024. Thus, investors have seen their yields come down. The forecast currently predicts 2–4 rate cuts in 2025; however, most analysts do not expect rates to drop to the near-zero pre-pandemic lows. Regardless, the future of interest rates remains uncertain.

For cash that is not earmarked for near-term liquidity needs, several strategies exist to maintain higher yield or cash flow outside the traditional stock and bond markets. Below are strategies I encourage you to explore to diversify or lock in today’s higher rates (rates quoted as of January 13, 2025):

• CDs – A certificate of deposit (CD) is a conservative savings account that pays a fixed interest rate (4.0–4.2%) on money held for an agreed-upon period of time (3 months to 3+ years).

• MYGAs – Similar to CDs, these offer a fixed rate of return over a fixed period of time, but are issued by an insurance company rather than a bank or credit union. Typically, the rates are higher (4.5–5.5%), and terms can be selected for a longer duration (3–10 years).

• Fixed Indexed Annuities – Similar to MYGAs, but with more potential for index-linked market upside, without any market downside. This is an option for investors wanting a higher upside than CDs or MYGAs, but still wanting a 0% floor with locked-in principal investment and gains.

• Private Credit Funds – May be attractive for investors looking to diversify and generate 5–10% distributions. Private credit is lending offered by non-bank financial institutions, allowing borrowers (typically small-to-large businesses or real estate) to obtain financing outside standard bank loans. Investments tend to be semi-illiquid and have a lower correlation with stock and bond market movements, which may help insulate against market volatility. Perhaps the most significant risk factor is borrower default risk. Accredited investors only.

• Private Real Estate Funds – Pool money from multiple investors to purchase various real estate projects. Examples include self-storage, data centers, industrial warehouses, senior living, apartments, and more. Investors participate in the property’s potential appreciation (or depreciation) and rents collected in the form of monthly or quarterly distributions, like a passive landlord. The fund makes it possible for individuals to afford an investment where they might not otherwise be able to purchase a commercial-size property on their own.

Many of the investment options above are only available through licensed professionals, including Madrona Financial. As a CPA, investment advisor, and fiduciary, Madrona will review your goals and properly plan and advise on appropriate investments. Contact Danielle and the Madrona team to learn more.

DISCLOSURES:
The information, suggestions, and recommendations included in this material is for informational purposes only and cannot be relied upon for any financial, legal or insurance purposes. Madrona Financial Services will not be held responsible for any detrimental reliance you place on this information. It is agreed that use of this information shall be on an “as is” basis and entirely at your own risk. Additionally, Madrona Financial Services cannot and does not guarantee the performance of any investment or insurance product. Insurance products are offered through Madrona Insurance Services, LLC, a licensed insurance agency and affiliate of Madrona Financial Services. Madrona Insurance Services and individual advisors affiliated with Madrona Insurance Services and Madrona Financial Services receives commissions on the sale of insurance products. Clients are not required to purchase insurance products recommended or to otherwise implement financial advice through Madrona affiliates. When we refer to preparation and filing of tax returns, tax returns are prepared and filed by our wholly-owned sister company Bauer Evans, Inc. P.S., a licensed certified public accounting firm. Madrona Financial Services, LLC is a registered investment adviser with the SEC. Our registration with the SEC or with any state securities authority does not imply a certain level of skill or training. Madrona Financial & CPAs is a registered trade name used singly and collectively for the affiliated entities Madrona Financial Services, LLC (“Madrona”) and Bauer Evans, Inc., P.C. (“Bauer Evans”). Investment advisory services are provided through Madrona. CPA services are provided through Bauer Evans. While it's essential to optimize your tax situation, it's equally important to comply with tax laws and regulations. Always ensure that your tax-saving strategies are legal and appropriate for your financial situation.