With rising interest rates, do reconsider investing your money in the right account to achieve financial goals. You do not earn as much as in the stock market by exposing your money to inevitable market fluctuations, however the interest earned in a money market or in a high-yield savings account, adds to your short-term financial goals or emergency fund.
Any product adds more value than just blindly stashing cash at home, or putting it into an interest-free account, where it depreciates in value. While small amounts are not a realistic beginning balance for many people who have just started to save, returns at today’s rates do add up.
Alternatives to High Yield Deposit Accounts
CDs, money market accounts and high yield savings accounts, are low-risk options to invest funds and earn a solid return. While interest rates are low, build overall balances which matter over time. Using the $10,000 deposit example, some other options offer higher or lower returns.
Traditional Savings Account
Savings accounts offered by brick-and-mortar banks or financial institutions earn nominal interest. These accounts are FDIC-insured and safe vehicles for cash, offering personal withdrawals at branches. But they charge fees with minimum deposit requirements. Many traditional savings accounts offer low APYs. If you deposit $10,000 into a savings account with an APY of 0.01% today, you earn $1 over 12 months.
Stashing Money in your Mattress
Some people wary of the banking system, deem it safer to squirrel money at home for emergencies, but there are downsides, besides being risky. Money at home is not FDIC/ NCUA-insured, and may be lost in fires or burglaries. Money in a cabinet or under mattress, earns no interest over time. As prices will increase over time, your $10,000 will remain $10,000, and valued at less, over a year due to inflation. Most checking accounts earn no interest with access to your money when needed.
Brokerage Account
A brokerage account is for long-term financial goals, but are still susceptible to market fluctuations, so avoid placing emergency funds in brokerage accounts. Investment accounts offer higher returns than deposit accounts over time in an index fund, or contributing to a retirement account for investment like a Roth IRA. But over a long time period, a much higher rate of return is possible over the past 10 years, long-term investors secured an 8% annualized growth.
Saving Your Money in Today’s Economy
Before opening a new account, assess how you earn the best return and meet savings goals. A 1-year CD locks the down payment for a home you plan to buy within a year. Or your emergency fund takes advantage of higher yield savings account rates. Assess your financial situation and goals to determine an appropriate account for you. A healthy mix of low-risk savings accounts and those accounts with high-return potential, builds a diversified portfolio ensuring financial success. A large lump sum is not needed to get started. Experts recommend always having a savings goal and saving whenever, whatever id possible each month to build up a good balance over time. Automated transfers make the process seamless, so you don’t miss the amounts set aside.
