The theme this week on the Retirement Quick Tips Podcast is: How to earn more on your cash

Today, I’m talking about floating rate funds - an underutilized investment for earning a bit more on your cash. 

You can purchase these funds in brokerage accounts and IRAs and they’re great for the rising interest rate environment that we’re in right now. Here’s how they work:

A floating rate fund is a mutual fund or an exchange traded fund or index fund that invests in short-term bonds with a variable interest rate. The interest that you earn will fluctuate with the underlying interest rate level, which means that when the rates are rising like they are right now, the interest that you earn also increases in lockstep. 

Floating rate funds are often made up of corporate bonds as well as loans made by banks to companies. For that reason, you’ll want to ensure that the credit quality of the fund is high, so you have minimal credit risk.

That being said, floating rate funds are paying around 1% right now - a much better deal than your traditional savings account - in fact, the yield is almost 100x higher than what most depositors are earning at the bank right now. 

The other thing to note that unlike money markets and high yield savings accounts, it’s possible that your investment could be worth less that what you invested, but even this year with bond prices in the toilet, floating rate funds have maintained price stability, which is encouraging. 

Another thing I like about these funds is their liquidity. Since they’re mutual funds or ETFs that trade similar to a stock, so you can access your money at any time if you need it, and it’s not tied up for a predetermined amount of time compared to something like a CD.  

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance