7 Best places to hold short-term cash wtop

Mike Bailey, director of research at FBB Capital Partners, recommends U.S. Treasury bills for investors who want to tie up cash for just a month or two. These maturities can range in duration from a few days to 52 weeks, with no fees and small commissions. Treasury bills can be purchased from a financial advisor, bank broker or directly from the government at TreasuryDirect.gov. “If you have the scale and the ability, it’s your best option,” Bailey says. The current rate for a one-month Treasury bill is 2.42 percent. An alternative is iShares Short Treasury Bond Fund ETF (ticker: SHV). It has an expense ratio of 0.15 percent and a 1.66 percent yield.

For investors willing to ride out the interest rate curve for a higher yield while remaining in safe U.S. Treasurys, Rosenbluth suggests iShares 1-3 Year Treasury Bond ETF ( SHY). This fund has a weighted average maturity of 1.9 years and holds 69 securities with maturities between one and three years. It has an expense ratio of 0.15 percent and a yield of 1.72 percent. “That yield is pretty impressive given that it doesn’t take on much interest rate risk or much credit risk,” he says.

Michael McClain, a chartered financial analyst and portfolio manager at Hedeker Wealth, says these municipal bonds are backed by the U.S. Treasury and “can be an attractive place to earn additional yield while maintaining a high level of credit protection.” These bonds are issued to fund other callable bonds, which are bonds that can be redeemed by the issuer before its maturity. Any proceeds are usually invested in Treasury bills until the original bond’s scheduled call date occurs. Financial advisors can buy these bonds directly. A fund version is the VanEck Vectors Pre-Refunded Muni ETF ( PRB). It has an expense ratio of 0.24 percent with a 1.44 percent yield.

McClain likes using Ginnie Mae mortgage-backed securities when looking for an investment vehicle that maximizes return and provides needed principal protection. Ginnie Mae is the main financing arm for U.S. government mortgage loans, and its government backing makes these securities a safer option while picking up additional yield, he adds. “Mortgages can be attractive in a rising interest rate environment, given the monthly cash flows,” he says. Investors can buy these securities from their financial advisors or brokerage accounts, but the minimum is $25,000. An alternative is iShares GNMA Bond ETF ( GNMA). It has an expense ratio of 0.12 percent and a yield of 2.41 percent.

There are several types of money market funds, and the highest yielding are prime money market accounts. The AAA-rated funds invest in corporate bonds with the highest credit quality rating by agencies like Standard & Poor’s or Moody’s. Nonrated prime funds hold similar types of securities, but without the third-party oversight. Deborah Cunningham, chief investment officer of global money markets at Federated Investors, says these funds are a little riskier than government securities, but still contain extremely safe corporate bonds. For investors who want to access to their cash right away, seek funds that are “daily liquid,” she says. “If you tell me by five o’clock you need your cash, you’ll get it.”

For investors who are willing to wait a few days to access their cash, high-yield money market mutual funds are another option. Available to anyone with a brokerage account, these funds offer slightly greater yields compared with traditional bank savings accounts, and the tax-exempt ones shield investors from the tax bite. Dave Dietz, president of Midas Financial, says for people who need their cash in a few months, these are the best way to go. One example is Schwab Municipal Money Fund (SWTXX), which earned 1.18 percent on its 52-week average return. But he says these mutual funds aren’t FDIC insured.

Rosenbluth says for investors who are willing to take more risk in the credit quality part of fixed income while staying within the high-quality investment grade category, there are a number of actively managed bond ETFs. These vehicles have many of the benefits that bond mutual funds offer, but with less expensive fees. One example is Pimco Enhanced Short Maturity Active ETF ( MINT), which invests in U.S. dollar-denominated debt from U.S. or foreign issuers; this ETF keeps the duration under one year. It has an expense ratio of 0.42 percent and a yield of 2.32 percent.