Dividend Investors Are Rotating out of Cash and into These ETFs

"Over the last few years, with interest rates as high as they were, cash has served many investors well who have been fearful of a volatile market. Finding a high-yield savings account providing more than 5% wasn't very challenging, nor was parking cash in a U.S. Treasury, which saw 10-year notes peaking at 4.79% in interest. However, as interest rates are slipping due to inflation returning to lower levels, the days of sub-5 % yields for cash investors are coming to an end."

"What's worse is that analysts predict rates on cash-heavy accounts will drop to close to 3.5% if the Fed cuts rates at least two more times before the middle of 2026. Given this possibility, it's super important to remember that inflation is cutting into any cash return, as a 3% inflation rate against a 4% yield means you are only receiving a real return of 1%, and this is before you have to pay taxes."

Cash previously delivered strong nominal yields, with high-yield savings and U.S. Treasuries offering rates above 5% and 10-year notes peaking near 4.79%. As inflation retreats and interest rates fall, yields on cash accounts have declined from around 5.1% in March 2025 to roughly 4% in November. Analysts project further declines toward about 3.5% if the Fed cuts rates twice before mid-2026. Inflation and taxes further reduce real cash returns, potentially leaving investors merely breaking even. Dividend ETFs present competitive yields and the possibility of growing payouts, offering an alternative to declining cash yields.

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