By Sean Fitzgerald, MBA
Assistant Vice President & Financial Advisor, LPL
For the past several years, "cash has been king." Money market accounts and high-yield savings have provided attractive returns with virtually no market risk. However, a shifting landscape is on the horizon, presenting an opportunity to redeploy non-emergency cash into medium-duration bonds and 3-to-5-year fixed rates.
Over the last two years, money market rates have begun a steady descent. Following several Federal Reserve rate cuts in 2025, the current benchmark federal funds rate sits between 3.5% and 3.75%. Unlike Certificates of Deposit (CDs), money market rates are variable and have remained in a downtrend as further cuts are penciled in for later this year—though they are not guaranteed.
To capitalize on this environment and hedge against lower rates, investors can consider extending duration into bonds, typically those with maturities of three to five years. This allows investors to "lock in" yields via coupon payments if the strategy aligns with their investment horizon. Because bonds and interest rates have an inverse relationship, your holdings may see price appreciation as rates decrease; the yields you secure today could become more favorable than those available in the future.
Given ongoing inflation and geopolitical uncertainty now is an ideal time to consider high-quality fixed income while short-term rates remain relatively elevated. While money markets remain an excellent tool for liquid emergency funds, relying on them for a long-term "rate lock strategy" creates reinvestment risk. By reallocating into 3-to-5-year fixed rates now, you are essentially capturing the tail end of a high-rate era. While the risk of rising rates could cause a temporary loss in market value, a suitable time horizon allows this strategy to act as a powerful hedge against falling yields.
Have questions about how this applies to your financial plan?
Every situation is unique, and the right strategy depends on your individual goals. The team at Central Investment Advisors is here to help you evaluate your options and make informed decisions. Connect with us to start the conversation.
Category: Investing
