Investing your long-term savings and retirement accounts will generally be the best way to maximize the value of those accounts over time. But you’ll always need to have a portion of your savings in a form that you can quickly spend, such as your emergency fund for example.
But having highly liquid accounts doesn’t necessarily mean cash, or at least not literally. After all, while you may want to keep a small supply of physical cash on hand, you certainly don’t want to keep tens of thousands of dollars from your emergency fund in cash in an envelope under your mattress. Even though interest rates are very low these days there are some options that can get you at least some interest on your cash.
Here are the five best places to park your cash.
1. High-Yield Checking Accounts. One of your primary concerns for your cash accounts should be easy to access. With a high-yield checking account, you’ll be able to access your funds through a traditional checkbook or a linked debit card. Check with your local banks and credit unions to see which institution pays the highest rates and has the lowest fees. You’ll likely find that the highest rates are generally available to accounts with the highest minimum balance.
2. Money Market Accounts. Similarly, your local bank’s money market account may provide you with a respectable return in exchange for parking your cash. Note that while these money market accounts often pay a higher interest rate than a comparable high-yield checking account, you are generally limited to a certain number of withdrawals from your account each month.
3. Bank CDs. The larger your emergency fund, the more comfortable you may be to sacrifice a bit of liquidity. While the current rates for bank certificates of deposit are currently quite low, you may be able to secure a higher rate than you’d find for a high interest checking account. Keep in mind that most banks will charge an interest penalty (often 30 or 60 days worth of interest) if you need to liquidate your CD before the agreed-upon term.
4. Savings Bonds. Believe it or not, the venerable U.S. Savings Bond has become an increasingly attractive option. Savings bonds have moved from the paper based bonds that you buy at a local bank, and the process is now electronic. You can buy bonds online, redeem them online, and have the funds transferred to your savings or checking account.
5. Treasury Funds. Finally, if you have a large amount of cash or wish to reduce your administrative burden, you may wish to consider investing in a mutual fund or an ETF that is focused on treasury securities. These funds won’t be quite as liquid as an account at your local bank, but they are generally quite safe and may provide a higher rate of return.
When looking for a place for your cash, make sure to weigh the pros and cons of each option, always keeping in mind that you want this particular portion of your savings to be very safe and easily accessible.
Tags: Banking Advice, emergency fund, saving money
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on Friday, May 3rd, 2013 at 3:39 pm and is filed under Savings.
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