Saving money is central to almost every plan to achieve personal financial health. But while planning for savings is almost always a good idea, not all savings plans are created equal. Placing coins in a piggy bank is probably not the optimal approach for a variety of reasons, including the fact that it earns no interest. The best places to put your money vary depending on your savings goals and timeframe, among other factors such as security and liquidity. However, a strong candidate list for almost any savers will likely include high-yield savings accounts, certificates of deposit, money market funds, treasury bills, and Series I savings bonds. Ask a financial advisor detailed savings advice.
Savings and interest basics
The best place to save your money won’t necessarily be the best place for someone else to save and earn interest. This choice is dictated by the specificities of the situation of each saver. Selection based solely on the highest advertised interest rate is not the wisest approach in most circumstances.
For example, one of the first things to consider when selecting the best place to save your money is what you are saving for. If you’re creating an emergency fund, easy access to your funds is probably more important than a high interest rate. A goal of saving for a down payment on a house, on the other hand, suggests fetching more interest at the cost of locking in your money for a while.
Generally speaking, the key factors that determine the best place to save money and earn interest for you include:
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Liquidity. How quickly and easily can you get your money when you need it? Some assets, such as real estate, are very illiquid, which means converting them into cash takes a lot of time and effort and will also cost something.
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Risk. What are the chances that you will earn less than the projected interest rate? The stock market is an example of an investment option that is too risky for many savings goals because the value of stocks fluctuates widely. If the market is down when you need cash, you may need to sell stocks at a loss.
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Time range. What is your investment horizon? The longer you can let your money earn interest, the higher the interest rate you can get.
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Interest rate. Often expressed as an annual percentage yield (APY), the interest rate determines how much money your savings will earn.
Best places to save and earn
After considering your particular situation and the factors above, you can probably find the best place to save and earn interest among these options:
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Savings account. Bank and credit union savings accounts are insured against losses and you can get your money quickly when you need it. The best savings accounts offer high APYs, low fees, and round-the-clock access.
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Certificates of Deposit (CD). A bank or credit union CD can pay a much higher rate than a savings account, but you’ll typically give up access to your funds for one to 60 months. The best CDs pay the highest rates on the market and have modest minimums.
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Money market accounts: These accounts from banks, credit unions, and other financial institutions often pay higher rates than savings accounts and also have easier access, including check-writing features.
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Goods of treasure. Treasury bills are debt securities issued by the US government and represent the ultimate in security. They have lower interest rates than some savings options, but are very liquid. You can buy them online at Treasury Direct.
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Series I Savings Bonds. I-Bonds are US government securities with a fixed interest rate equal to the rate of inflation at the time of purchase. I-Bonds offer limited liquidity but high security, particularly against loss of purchasing power due to inflation, and are available through Treasury Direct.
The essential
The best place to save money and earn interest depends on your savings goal, investment time horizon, risk tolerance and other factors. For many savers, the best choice will be between savings accounts, certificates of deposit, money market accounts, treasury bills and I-Bonds. These options offer a variety of emphases on key interest rate, fee security, and liquidity concerns. While no one is perfect for everyone, each has something to offer the saver looking for the perfect place to save and earn.
Saving tips
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Before deciding where to put your savings, talk to a financial adviser. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three vetted financial advisors who serve your area, and you can interview your advisors for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.
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In order to make informed decisions about where to save, you need to know how long it will take you to reach your savings goal. SmartAsset’s Investment Calculator is a free online tool that will instantly tell you what your investment should be worth at a specific time in the future after taking into consideration your starting amount, the size and frequency of additional contributions, the expected rate of gain and time horizon.
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