- When interest rates on savings accounts started dropping in 2020, I looked for other options.
- I moved some money into CDs to chase the highest APY, then kept moving it as rates changed.
- I've made a few thousand dollars in passive income following this strategy.
As an entrepreneur, one of my biggest money goals is always to find new ways of bringing in passive income. Over the past few years, I've done this in a handful of different ways, from introducing new products and services within my business to becoming an affiliate for brands I like and earning money as people buy the products I promote.
Outside of my business, I've also looked to find new ways of bringing in passive income from my financial portfolio. One of the best ways I've done that is by keeping my cash in interest-generating savings accounts and CDs.
But during the early days of the pandemic, when the Federal Reserve lowered interest rates, the annual percentage yield kept dropping on both these types of accounts. To get the best value, I decided to use them strategically and move my money back and forth based on which one offered the best interest rate (provided there was no penalty for doing so).
Since 2020, I've shifted my money between these two types of accounts at least once or twice a year to maximize my passive income-earning opportunities. I estimate that I've made a few thousand dollars with this strategy since then. Here are four situations when I've moved my money.
1. When HYSA rates go down
Over the last few years, the interest rate on my high-yield savings account has fluctuated quite a bit. Whenever I see that the rates are higher with CDs, and the terms aren't longer than 18 months (since I want to make sure I have access to the money if I need it in the short term), I'll move a chunk of my cash into a CD.
Once, for example, my bank sent me an offer for an 18-month CD with an interest rate that was one full percentage point higher than the rate offered at that point on my high-yield savings account. I'm currently assessing how much cash I'm willing to put into this CD and not touch it for that time period in order to take advantage of the better interest rate.
2. When a CD matures
At any given time during the year, I have as many as three CD accounts open and in use. Usually, at least once a year, the money in that CD matures, which means I'm able to decide whether to withdraw the cash or renew the CD for the same term, though the interest rate might have changed (either higher or lower).
At that time, if the APY offered in my high-yield savings account is higher, I'll move the cash back into that account to earn compound interest and leave it there or hunt for another high-interest CD.
3. When an influx of cash can be left alone
As an entrepreneur, my income often varies. I live on a strict budget that helps me manage my spending and put aside money every month to help me reach my financial goals.
But when I get an influx of cash from a new project or a product I created that generates a lot of profit, I find myself with a chunk of money that I can put aside and not touch for a while. That's when I'll hunt for a CD that offers the highest interest rate that I can find, for the time period that I'm willing to leave the money untouched.
If I'm not sure whether I can keep the cash in a longer-term CD, and don't want to risk having to pay early withdrawal penalties, I'll search for a no-penalty CD.
4. When I need to access the cash for other opportunities
At least twice a year, I invest in new streams of passive income, whether that's putting the money into REITs or creating a new product to sell to my audience (such as an online course).
Depending on the interest rates available, I might have more cash in CDs than in my high-yield savings account. But when I know that in the near future I'll need some of the cash to invest in other passive income streams, I make sure to move money out of the no-penalty CDs I have into my high-yield savings account.
This article was originally published in October 2022.
