Yields on cash are cooling, but investors who want to earn a little interest on money they need to keep safe still have options in 2025. The Federal Reserve, which convenes for its final two-day meeting of 2024 on Tuesday, is broadly expected to trim interest rates by a quarter point, bringing its target range to 4.25% to 4.5%. Fed funds futures trading data suggests that central bank policy makers are likely to hold rates steady in January, however. Falling rates have made it less profitable for investors to hold idle cash. A one-year certificate of deposit from Bread Financial – which once offered an annual percentage yield of 5.25% – now pays 4.3%. And the situation is only going to get worse savers. “Deposit rates are falling faster than they rose,” said Wells Fargo analyst Michael Kaye in a Monday report. That said, investors who have a short time frame for a bundle of cash – say $50,000 you want to hold for an emergency or for a down payment on a home – can still take advantage of attractive short-term rates. If the goal is truly short-term, “more so than just serving as an evergreen ballast, it makes sense to own some short-duration positioning,” said Adam Reinert, certified financial planner and chief investment officer at Marshall Financial Group in Doylestown, Pennsylvania. Understand your goals Before investors choose their preferred yield-generating asset, they’ll have to consider three key factors: their time horizon, their risk appetite and their liquidity needs. “One key consideration for this individual is that their potential return, be it price appreciation or yield, is going to be correlated with the level of risk they take and how they invest the $50,000,” said Reinert. The time horizon is especially important: Fixed income assets with longer maturities are likely to see sharper price swings when interest rates fluctuate. Bond yields and bond prices move in opposite directions so, for example, when prices rise, yields fall. On the risk appetite front, investors may find attractive yields in the fixed income market, but they should ask themselves if they’re trading for lower quality assets or accepting greater default risk. Finally, liquidity is another factor: Certain assets offer higher yields if you’re willing to stay put for a set period of time. A spectrum of safe assets Investors who aren’t willing to take chances with their bundle of short-term cash may want to look at high-yield savings accounts, certificates of deposit (CD) and money market funds. Banks that offer high-yield savings accounts are still offering annual percentage yield of more than 3%. Bread Financial is still touting a 4.6% rate, while Synchrony Financial still offers a yield of 4.1% The catch: Banks can lower their savings account yields any time – and they will as the Fed lowers rates. CD rates are generally locked in, but banks likely won’t offer similar yields once your maturity is up. A ladder of short-dated CDs or Treasury bills can also allow investors to earn some interest on their cash. This involves buying several instruments with staggered maturities. Money market fund yields are also expected to cool in the new year, but yields may still be solid enough for investors who just want to stash some of their cash for a short period. The Crane 100 Money Fund index currently has a seven-day annualized yield of 4.42%, well off its high of more than 5% last summer. Money market funds have a stable net asset value, meaning investors will get back what they have put into these funds, even as the yield may fluctuate. Taking a little more risk Two more options are available for investors who are willing to take a little more risk, said Arvind Narayanan, Vanguard’s co-head of investment grade credit and a senior portfolio manager. Ultrashort bond funds have the benefit of limited duration exposure – meaning that their prices aren’t very sensitive to rate fluctuations. They hold floating rate instruments and other short-dated assets. “You will out-yield the money markets currently and over the course of the next year,” said Narayanan. Vanguard’s Ultra-Short Bond ETF (VUSB) has a 30-day SEC yield of 3.87% and an expense ratio of 0.10%. It also has an average duration of one year. For those with longer time horizons who are willing to go out on the yield curve a bit, short-term bond funds might also be a fit. Vanguard’s Short-Term Investment Grade Fund (VFSTX) has a 30-day SEC yield of 4.42% and an expense ratio of 0.2%. It has an average duration of 2.6 years. “You will out-carry the money market funds over the course of the coming year, most likely, and get a little more duration cushion,” said Narayanan. “In the event of an unexpected rally in rates and a risk-off environment in markets, you should get a positive total return for having this two, two-and-a-half-year duration exposure,” he added, referring to the possibility of capital gains in addition to the yield. Credit quality within short-term bond funds matters: A few ultrashort bond funds had a rough go in 2008 during the financial crisis, as they held risky nonagency mortgage bonds whose prices tanked, prompting investors to flee. Be sure that the portfolio manager of your bond fund isn’t reaching for yield, and always keep an eye on prices to ensure that you’re pocketing as much of your return as possible.