Whether you’ve received a financial windfall or are determined to finally build that rainy day fund, taking your savings seriously is worthy of a spot at the top of your list. Expert opinions vary, but saving three to six months of expenses as your initial emergency savings goal is still a great place to start. However, choosing the right account to store and grow your money can mean the difference between a pittance earned in a low-interest account and hundreds or even thousands of dollars. Your goal and cash amount will determine the best savings option.
When deciding where to put your money, the obvious place to start is your bank account. Dominique Henderson, certified financial planner and founder of DJH Capital, spoke to CNET about common options for parking large sums of money, especially for emergency savings. “Banks are the most common source of accessible cash for the majority of consumers,” he said. “There may be nuances and/or improvements to this strategy, but as long as readily available liquidity [is concerned] — in 24 hours or less — a bank would be the best place.”
A savings account or a checking account may be suitable options, but they are far from the only ones. When considering alternatives, keep in mind the liquidity of the account type – the ease of access to your money – the interest rate, the annual percentage yield or APY, and the security of your money against potential losses.
The following list highlights five savings options for a lump sum that should be saved for emergencies.
Money market accounts
Savings account with debit card access
Best APY: 1.75%
Money market accounts are similar to high yield savings accounts in that they offer above average APYs and provide immediate access to funds when needed. When offered by banks and credit unions, these accounts are insured up to $250,000 by the Federal Deposit Insurance Corp. APY and interest rates are variable like savings accounts, however, money market accounts offer debit card and check writing functionality to provide more access to your money in case of need.
These accounts often offer a tiered interest rate, which means that interest rates increase as the account balance increases. They differ from savings accounts in that the minimum deposit is usually higher, monthly maintenance fees are applied if minimum balance requirements are met, and some banks impose a monthly transaction limit. Like savings accounts, money market accounts are easy to set up and are available at all levels.
High Yield Deposit Accounts
Higher rates than traditional accounts
Best APY: Up to 2.55% for high efficiency saving, up to 4.25% for high efficiency control
According to CNET’s sister site The bank rate, the national average for an APY savings account is 0.13%. When you consider that the current inflation rate is 8.5%, keeping money in a low-interest account works against you.
High-yield savings accounts and high-yield checks are most commonly found at credit unions, small community banks, or online-only banks. These accounts can offer variable APYs of up to 2.55% and 4.25%, respectively, as they compete with big banks to attract customers. High-yield checking accounts may include monthly transaction minimums and cap balances to which higher APY rates apply, but will come with check-writing capabilities or debit cards for immediate cash access . High Yield Savings Accounts can take a few days to access cash through the clearinghouse’s automated transfers.
High yield checking accounts generally offer a higher APY than high yield savings. The highest APY for high-yield checking is currently 4.25% at The Capitol Federal Credit Union, but some accounts may require a direct deposit or ACH transfer once a month, opt for paperless statements, or have a minimum number of monthly debit card transactions. Andrew Latham, CFP and editor of Super Money, believes it’s a win-win for consumers and banks. “High-yield checking accounts offer consumers an above-average APY because financial institutions generate interchange fee revenue through debit card usage,” he told CNET.
Certificates of deposit
Less cash in exchange for higher possible earnings
Best APY: 3.00% for 1 year CD
A CD can be thought of as a fixed rate savings account with a stopwatch attached. Money used to buy a CD will earn a higher APY than a traditional savings account if not touched until the maturity date expires. CDs come in a variety of flavors. Some will allow you to deposit more money into the original CD. You can combine CDs in ladders with different maturity dates. There are even CDs that will adjust the APY to match increases in available interest rates.
Traditional CDs offered by banks and credit unions require a minimum deposit that pays a fixed interest rate and APY, but require you to leave the money alone between three months and five years to avoid early withdrawal penalties. This is ideal for earning a higher return in a secure deposit account, as they are also FDIC insured for up to $250,000. Traditional CDs, however, aren’t as liquid if you need cash on the fly.
Penalty-free CDs are alternatives that offer the benefits of increased CD rates with more flexibility in time restrictions. Penalty-free CDs, as the name suggests, do not charge a fee to access the funds before the CD reaches the maturity date. The time flexibility trade-off comes with a trade-off between lower interest rates and the APY offered.
goods of treasure
Higher rates backed by US government power
Current yield: 3.35% for 1-year Treasury bills
Treasury bills are one of four types of debt securities issued by the US government. This debt is used to finance the construction of capital projects such as the construction of schools, highways or bridges. You basically lend money to the federal government. Because they are “backed by the full confidence and credit of the United States government”, treasury bonds, or treasury bonds, are generally considered safe, low-risk investments. All income is exempt from state and local taxes, which may prove attractive to those who live in states or cities with high tax rates.
Treasury bills are short-term savings instruments that mature in up to one year and are typically sold in $1,000 increments. There are two ways to buy treasury bills: directly from CashDirect auction or with a bank or broker in the secondary market. When you buy directly from the government, the interest rate is set during the bidding process. A non-competitive bid, the easiest way to buy treasury bills, guarantees that your bid will be accepted but does not fix the interest rate before the auction closes. If you need access to cash before the treasury bill matures, you can sell the note in the secondary market.
Series I Savings Bonds
Best for safe options that keep pace with inflation
Current interest rate: 9.62%
Like treasury bills, income from Series I Savings Bonds, or I Bonds, is exempt from state and local taxes. However, these links add something special. “When it comes to saving for an emergency fund, the best and safest option is to buy I Savings Bonds,” says Michael Ryan, a financial coach with 30 years of experience in the financial planning industry. “Savings Bonds I are government guaranteed and safe, and they offer interest of almost 10%.” I bonds are also a government guaranteed security sold through the TreasuryDirect site. The current rate is set at 9.62% and will reset in October. These bonds pay a fixed interest rate partially linked to inflation. When inflation rates rise, the interest rate attached to an I bond adjusts so that the earning power of your savings is not eaten away by changes in the economy.
I bonds have a one-year lock-up period during which your money is not accessible. After this period, there is a holding period of five years. Cashing in the bonds during this phase will trigger a three-month interest penalty. However, maintaining secure savings in a vehicle that will keep pace with inflation may be worth the limited liquidity offered by these bonds.
At the end of the line
Whether the funds come from a one-time event or you’re creating a plan to build your emergency savings over time, deciding where to keep your money can increase your bottom line. Keep an eye on the rate of return offered by each type of account, knowing that variable rates can change. You should also consider how easy it is to withdraw money from your account. Combining your savings across several different types of savings vehicles will allow you to capitalize on better rates with longer-term savings restrictions, while giving you the flexibility to quickly access cash to cover expenses. unforeseen.