Where Should I Keep My Savings?
You have many options for saving money to reach your financial goals. Savings accounts, certificates of deposit (CDs), money market accounts, cash management accounts, and investment accounts are among the possibilities.
The savings vehicles you choose depend on the timeline for reaching your goal, the amount of interest you hope to earn on your cash, and how often you want to access the funds. The following guidelines can help you decide which savings vehicle is best for you.
Tips to Find the Right Savings Vehicles
Different account features can help determine which savings vehicles best fit your needs. Consider the following features:
Access to withdrawals: Some accounts charge a penalty if you withdraw money before a certain time.
Interest rate: Some accounts offer higher interest rates or potential investment income than others.
The timeline for reaching your goal: Evaluate how much you need to save to attain your goal and how long it might take.
Vehicles for Short-Term Savings
Short-term savings goals generally require less than a year to achieve. Examples include a small emergency fund, a vacation, or a home improvement project. Appropriate savings vehicles include:
High-yield savings account: Typically offered by online banks, a high-yield savings account tends to offer much higher interest rates than savings accounts at traditional brick-and-mortar banks. You can access your cash as needed.
Money market account: A money market account is a savings account with some checking features, such as paper checks or a debit card. Interest rates tend to be similar to those of high-yield savings accounts.
Cash management account. Offered by brokerages rather than banks, a cash management account typically has good interest rates and some checking features, such as a debit card and ATM access.
Vehicles for Medium-Term Savings
Medium-term savings goals typically require a year or longer to attain. Examples include a three- to six-month emergency fund or a down payment on a home. Appropriate savings vehicles include:
High-yield savings account: A high-yield savings account lets you earn a competitive interest rate and withdraw funds when needed.
Certificate of deposit: If you know when you want to use your savings, putting the funds into a CD that matures just before that date lets you earn a set amount of interest toward your financial goal.
Money market account or cash management account: A money market account or cash management account offers easy access, good interest rates, and useful checking features.
Vehicles for Long-Term Savings
Long-term savings goals typically require a decade or longer to attain. Examples include retirement and a child’s college fund. Appropriate savings vehicles include:
Investment Account
Invested cash tends to earn the highest rate of return long-term compared to other savings vehicles:
Putting retirement money into a retirement-specific account can provide tax advantages and high interest rates.
A 401(k), 403(b), and/or Individual Retirement Account (IRA) is generally best for investing savings.
Alternatively, investing in a taxable investment account with no penalties for early withdrawal might be appropriate.
Keep cash invested for at least five years to weather potential stock market volatility.
529 Plan
A 529 Plan is a tax-advantaged investment account that helps parents save money for their children’s college tuition and earn compounding returns.
*This information is for educational purposes only.
Where do you keep or plan to keep your savings? Let me know in the comments!
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