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Check out high-interest, low-penalty CDs
"Generally, any money earmarked for the short-term (1 year or less) should be in a liquid position," says Gage DeYoung, CFP professional, founder of Prudent Wealthcare in Aurora, Colorado. "That being said, it is frustrating to get 0% on cash."
And today's average CD rates are indeed depressing. They range from 0.11% annually on a 3-month CD to 0.84% annually on a 5-year CD, according to Bankrate.com's most recent survey of banks and thrifts.
With interest rates starting to creep up as the Fed gradually raises its rate target, you shouldn't lock in rates this low.
Instead, look for above-average interest rates and low early withdrawal penalties.
For example, Ally Bank offers no-penalty, 11-month CDs paying 0.87% APY. There's also no minimum investment.
If you have at least $1,000, you'll get a better yield -- 1.25% APY -- with a low early withdrawal penalty of 3 months' interest on a 12- or 18-month CD from Triumph Savings Bank. It's based in Dallas, but anyone can open an FDIC-insured account online.
If you can withdraw your balance anytime without sacrificing much interest, you can move your balance to higher-paying CDs as rates climb. In the meantime, you've locked in a higher interest rate than you could have earned by keeping that money in a savings or money market account.
You could also create a short-term CD ladder to increase your returns, suggests DeYoung.
RATE SEARCH: Ready to purchase a CD? Search Bankrate.com for the top-paying certificates of deposit near you.