There are many different short-term savings options available, from savings accounts to CDs. The best option depends on your goals and the amount of money you want to invest. Some options have higher interest rates than others, but they all offer safety and low risk. Interest-bearing savings options are often the most secure and safe options.
The goal of short-term savings is to save for a large purchase like a down payment on a house, to help fund a dream vacation, or for emergencies. Other short-term savings options include money market and personal savings accounts, which offer quick access to money. Personal CDs are FDIC-insured and run from three months to five years. In addition, they offer guaranteed interest rates.
Another great option is a Treasury Department bond. These funds have yearly limits but can yield higher interest rates. Although Treasury bills are considered a safe short-term savings option, you have to keep in mind that they may lose value over time. A high-yield savings account will pay higher interest rates but they can also lose value if interest rates rise.
A high interest savings account is a convenient option if you need a large amount of money in a short period of time. Usually, money can be transferred to your checking account within a day or two. This option provides the most liquidity, but can lose purchasing power due to inflation. If your goal is to purchase a home in the near future, short-term investments are a good choice.
While CDs offer a guaranteed interest rate, they do not allow for regular access to the money you have saved. In addition, early withdrawal penalties may make them more expensive than online savings accounts. However, they are FDIC-insured and may offer higher interest rates than savings accounts. Further, they require a minimum deposit before you can begin investing.
While short-term savings are more accessible and safer, medium-term savings are best used for bigger purchases. In medium-term investments, you need to set aside more money and invest it for a longer period of time. In addition to this, you also need to consider the amount of risk involved. If you plan to use the money for a long-term goal, you will have to plan on keeping it for five or more years.
Investing in stocks is another option if you don’t need it immediately. This is one of the best ways to earn higher returns and keep your purchasing power. Investing in the stock market is a good option if you have a few years until you need to withdraw the funds. You can invest this money in a stock portfolio that tracks a specific index or bucket of stocks.
You can also take advantage of cash management accounts offered by online investment firms and robo-advisors. These types of accounts may provide you with other services such as mobile check deposit, money transfers, and goal-setting tools. Some of these accounts even have overdraft programs. One popular option for cash management is Wealthfront’s Cash Account, which has no fees and pays 2.00% interest. The account also offers up to $1 million in FDIC insurance.