It may be time to ditch savings accounts and mutual funds for fixed index annuities.

At the end of July, the Federal Reserve raised its benchmark interest rate by 25 basis points to 5.25%-5.50%. This is the highest rate we have seen in 22 years. So, what does that mean for people who are trying to save up? Of course, cash savers may see a slight boost to their accounts any time interest rates go up, but there are other factors and options to consider, especially if you are planning to use your savings for retirement and expecting it to last throughout the remainder of your life. 

Looking at yields alone, some savings accounts now have annual percentage yields of around 4%, which is up from an average of .5% just a year ago.  Anyone can see that this makes savings accounts a more desirable option.  Money-market mutual funds — mutual funds composed of holdings like government debt, repurchase agreements and corporate debt — are hovering even higher at 5%, up from an average of .43% last year. 

One might think this creates a no-brainer decision and that these high yield savings accounts, or even more so, mutual funds, are the obvious way to go based on rates alone. It is important to look a little deeper, however, as mutual funds can have a lower liquidity than savings accounts due to the minimum balance stipulations and monthly withdrawal limits. They also tend to be much riskier and are not covered by FDIC insurance.  With both of these strategies though, there is also the fact that when the Fed cuts rates, both money market mutual funds and savings accounts tend to drop their rates.  This makes both of these options much less appealing to those who have their sights set on long-term growth for the future. 

Overall, savings accounts and money market mutual funds may not be the “safest” option with the most “reasonable rate of return over time” for protecting your nest egg.   

So, what if there is another investment vehicle that is currently thriving due to Federal Reserve increases but will also provide longer term returns?  Well, there is!  And, it’s one that can potentially check all of the boxes today’s savers are looking for.   We are talking about Fixed Index Annuities (FIA).  Fixed Index Annuities provide an environment for your savings with no risk at all, as the money is protected from market declines while still typically making a reasonable rate of return.  FIA’s grow based on the performance of a specific market index. When the index goes up, the asset grows, and when the index performs poorly, the investment is backed by an insurance company and protected, so there is no loss is incurred. 

FIA’s allow your money to grow safely over time, while still providing you with access to your funds if you need it, since most FIA’s offer a free 10% withdrawal each year.  This provides today’s savers with security, growth, and liquidity.   For these and other reasons, we at Summerlin Benefits Consulting call FIA’s “safe money vehicles” and consider these to be a better option for many of our clients, especially during these uncertain times. 

We would be happy to take your call today if you’d like to speak with one of our safe money experts and learn more about how you can maximize your savings and prepare for your future, safely in today’s market climate.