Whether you earned a bonus at work or made a profit selling your home, extra money gives you the chance to boost your savings and reach financial goals. However, deciding where best to keep your money is not always easy and may depend on your individual circ*mstances.
The return on your investment is an important factor to consider, as is the liquidity and speed at which you may need to access the money. Security and investment costs should also be taken into consideration when deciding where to save additional money.
With that in mind, here are some options for you to consider.
1. Savings account with high return
INsavings account with high returnsis a viable option to grow your savings and provide easy access to the money for emergencies or other unplanned expenses.
To put the gains into perspective, the return on traditional savings accounts is typically very low, just 0.01 percent annualized (APY). On the other hand, the best high-yield savings accounts currently earn more than 5 percent APY.
You canopen a savings accountto build an emergency fund or save for a vacation or home repair while having security and liquidity.
If you need access to some of your money from time to time, keep in mind that restrictions on savings accounts can be an issue. There could be onelimit of six withdrawals or transfersper month, depending on the bank's policy.
It is important to have a savings account with a bank that is insuredFederal Deposit Insurance Corp. (FDIC). This way you will not lose your money if the bank goes bankrupt. The FDIC insures up to $250,000 per depositor, per FDIC-insured bank, per property category. Many credit unions are similarly insured byNational Credit Union Share Insurance Fund (NCUSIF).
2. Certificate of Deposit (CD)
Like a savings account, a certificate of deposit (CD) is often a safe place to keep your money. A big difference betweena savings account and a CDis that a CD typically unlocks your money for a set period of time. If you withdraw the money early, you will be charged a penalty.
CDs typically have a fixed rate of return, so tying up your money in a CD can be a bad idea in an environment of rising interest rates. Conversely, tying up your money at a time when interest rates are falling can be a smart move.
CD terms usually range between three months and five years, although shorter and longer terms can also be found. Common types of CDs include:
- Traditional CD:This is the most common type of CDs and provides a fixed return over the term. If you withdraw the money before the term ends, you will be charged an early withdrawal penalty.
- CD without penalty:Also called a liquid CD, this account allows you to withdraw money early, although penalty-free CDs typically have lower returns than traditional CDs.
- Blow-up CD:This CD usually allows you to request a price increase during the term if CD rates have improved.
One strategy to increase your earnings is to open multiple CDs that mature at different times. This is calledCD-ladder, and it offers flexibility and less risk than just putting all your money in one CD.
3. Money market account
If you want a safe place to park extra money that often yields higher returns than a traditional savings account, consider amoney market account. Money market accounts are similar to savings accounts, but typically pay more interest and may offer a limited number of checking and debit card transactions per month.
A money market account can be a safe place to park extra money and earn a higher return than a traditional savings account. Money market accounts are similar to savings accounts, but often pay more interest and may offer a limited number of checking and debit card transactions per month.
Money market accounts provide easy access to your money and are safe if your banking institution is federally insured. Some money market accounts offer a tiered structure that pays higher APYs for larger balances.
A money market account can be a good alternative if you don't want to tie up your money in a CD for an extended period of time. There are typically minimum deposit requirements to open a money market account or avoid monthly maintenance fees.
4. Check account
INcheckaccountin a federally insured bank or credit union is a safe place for money intended for bills and everyday expenses. However, it's not necessarily the best place to save your money, as most earn little or no interest.
Checking accounts are highly liquid and come with check writing privileges, ATM access and debit card access. Withdrawals can be made at any time and there is no risk for your client.
Although not common, they are therechecking accounts that provide a decent return. However, these accounts generally shouldn't be your primary place to store savings.
Account fees are often nominal or waived if you maintain a minimum balance, set up direct deposit, or use your debit card a certain number of times per month.
5. Treasury bills
Most checking and savings accounts, CDs and money market accounts offer federal deposit insurance, which is an important benefit.
But let's say you have cash stashed away that exceeds federal insurance limits. In that case, you might want to take a lookUS government bondsor Treasury bills, which are federal short-term debt obligations with a term of one year or less. Thatlong term, the more interest the investor earns.
Treasury bills also have the advantage of being liquid and easy to buy and sell. Moreover, they are extremely safe and have no risk of losing principal because they are debts owned by the US government.
Treasury bills are sold on the secondary market, for example through a broker or investment bank, or at auction on the TreasuryDirect website. They are sold to investors for less than face value.
6. Short-term bonds
If you plan to park your money somewhere for at least five years, consider options that are more like investments than investmentssavings account. An investment can yield a higher return, but with all investments there is a risk that you will lose all or part of your money.
Unlike government bonds, short-term bonds do not protect the principal. You may find that when you withdraw your money, not only have you not received any interest, but you have also lost some of the principal.
For example, an investment fund that invests inshort-term bondsmay grow a little, but if interest rates rise, the value of the fund will likely fall. This is because bond prices generally fall when interest rates rise. The longer the term of a bond, the more vulnerable it is to price fluctuations. That is why some investors prefer short bonds.
7. Riskier options: stocks, real estate and gold
Some people have a high risk tolerance, while others are only comfortable with safe investments, especially if they are retired or nearing retirement.
For example, stocks can lead to high returns, even though investors will have to bear the inevitable ups and downs of the market. A good place to start is one, which includes the largest globally diversified U.S. companies across all industries. This generally makes it less risky than other investment options and has given investors returns of around 10 percent per year over time.
If you want to make a long-term investment, consider purchasing a property as a rental property. However, finding and securing a suitable property can be difficult due to the increaseinterest on mortgage loanshigh inflation and lack of housing supply.
Another popular oneinvestment opportunity is gold, especially in difficult economic times. Some investors see gold as a safe place to park their money, while others are more skeptical. Nevertheless, the decision to invest in gold should be personal.
How a financial planner can help you save extra money
When deciding where to put your extra money, consider seeking expert adviceFinancial Advisor, who can help you create a comprehensive financial plan.
A financial advisor can help you answer questions about complicated topics, such as estate planning. Such specialized financial topics can be difficult to navigate and there's no shame in getting a second opinion and some guidance.
Do some research before choosing a financial advisor that is a good fit for you and your situation. First of all, you should always ensure that your financial advisor is a true fiduciary who will act in your best interests.
Focusing on a solid financial plan can make it easier for you to decide which savings strategies will work best for you.
– Former Bankrate writersLibby Wells In Liz dogcontributed to earlier versions of this story.
