Alternatives to holding reserve funds in savings account?

[James Sea]

Are there alternatives out there to holding reserve funds in a savings account? Short term bonds? GICs? Anything else? It hurts me to see essentially nothing in interest on my reserve funds when I know there are better savings strategies, but I'm not sure if there are better moves that also maintain sufficient liquidity. Any charge that would eat up reserve funds would either come in the form of an invoice or go on a credit card to be expensed so I can't imagine needing "immediate" access to funds. Thanks for your thoughts!

[Ian Ippolito]

Here's how I do it (I call it "high-yield CD chunking"). I will invest it in an FDIC insured five year CD with a relatively low penalty for breaking it. Then on top of that, I will split it up into smaller chunks so that I only have to pay the small penalty on whatever I am using while the rest continues to get the higher interest rate.

For example, if I had $100,000 in cash, I might split it up into 10 CDs of $10,000 apiece. I can easily get 3.1% APY on each of them. (https://www.nerdwallet.com/blog/banking/nerdwallets-best-cd-rates/)

Then say in year three I need to cash out $20,000. I would then break those two CDs, and pay the modest penalty, while the rest continues to get maximum interest.