The era of no-brainer 5% returns on cash is ending

livemint.com:

It’s getting more complicated to hold cash. Certificates of deposit, money-market funds and various other cash-like investments have offered healthy returns, in many cases over 5%, since the Federal Reserve started lifting interest rates two years ago. But with the central bank now considering cutting rates, some cash-like investments are staying strong while others have begun to decline in yield.

CDs show the shift under way. Last year it was easy to lock in a 5% rate for 12 months or longer. Now the top rates are shorter-term offers.

Three-month CDs pay as much as 5.5% annually. CDs that stretch out two years, however, offer under 5%, down from about 5.5% late last year, according to Bankrate data that tracks the highest rates financial institutions are offering. About 70% of high-rate CDs opened in February lasted less than a year, said Adam Stockton, managing director at the data and consulting firm Curinos.

“Most consumers look at the rate first and the term second," Stockton said. But the term will be more important, particularly if the central bank cuts rates later this year, he said. Not all cash is equal Americans have been focusing more closely on where they stow their cash since the Fed hiked its interest rates starting in early 2022.

At the time, stocks and bonds fell sharply. Cash products started offering loftier interest after years of paying next to nothing. When regional banks failed last year, more money poured into money-market funds, which now have a record $6.5 trillion in assets.

The average rate on these funds peaked at 5.2% in December and is now 5.14%, according to Crane Data. It’s unclear when the Fed will cut rates or how many cuts will happen this year. Though central bankers have penciled in