There is only two things you can do with your money…save it or spend it. After you develop a budget and stick to it, you will see that you will and should have some money left over…after all, you should always pay yourself first! What does that mean? Well personally, to me it means that I take a look at what I am making each month, before taxes, and then set aside at least 10% to stow away into savings… Well, actually, I put away a lot more than that but if you are putting away 10% you are doing well. So…now you have set aside the money to save…now what? Where do I stow this money? Well, that depends on when you may need to have that money in the future. 2-3 years? 5-10 years? Review what your goals and needs are and then look to put your savings in these 5 Best Places to Put Your Savings.
#1. Savings Account: Duh, no brainer here right? This is where you want to park money that you may need in the short term such as an emergency fund, etc. Money in a savings account earns modest interest, yet is easily accessible in an emergency. Because of the low-interest yield, though you do not want to park all of your money here, only that which you will need for an emergency or right away. Also, shop around banks as many offer different interest rates…
#2. Certificates of Deposit (CD): Ok, so now you have squirreled away some money for an emergency, now we have some goals that are 2-5 years away. We can’t afford to lose the money, but we would also like to see our money earn a bit more interest than a traditional savings account. The CD is perfect for this. However, once you stow money in a CD there are often penalties for cashing it in early. So, always make sure that you don’t need the money for a few years before you commit. Again, shop around for the best rates and park your money there.
#3. Treasury Bills and Notes: U.S. government bills or notes, often referred to as treasuries, are backed by the full faith and credit of the U.S. government, making them one of the safest investments in the world. Treasuries are exempt from state and local taxes and are available in different maturity lengths. Bills are sold at a discount; when the bill matures, it will be worth its full face value. The difference between the purchase price and the face value is the interest. For example, a $1,000 bill might be purchased for $990; at maturity, it will be worth the full $1000. Treasury notes, on the other hand, are issued with maturities of 2, 3, 5, 7 and 10 years, and earn a fixed-rate of interest every six months. In addition to interest, if purchased at a discount, T-notes can be cashed in for the face value at maturity. Both Treasury bills and notes are available at a minimum purchase of $100. If you can afford to not have access to your money for 5-10 years, a treasury bill or note may be the way to go to earn some interest.
#4. Bonds: No, not James Bond! A bond is a low-risk debt investment, similar to an I.O.U., which is issued by companies, municipalities, states and governments to fund projects. When you purchase a bond, you are lending money to one of these entities (known as the issuer). In exchange for the “loan”, the bond issuer pays interest for the life of the bond and returns the face value of the bond at maturity. Bonds are issued for a specific period at a fixed interest rate. Each of these bond types involves varying degrees of risk, as well as returns and maturity periods. In addition, penalties may be assessed for early withdrawal, commissions may be required, and depending on the type of bond, may carry additional risk, as with corporate bonds where a company could go bankrupt. Bonds typically offer a higher payout than traditional treasury notes but are sometimes riskier.
#5. Mutual Funds: Nervous about investing in the stock market…or are you like many and are completely clueless about where to even start? Mutual funds are for you! A mutual fund typically invests only in low-risk securities. As a result, mutual funds are considered one of the lowest risk types of money market funds. Mutual funds typically provide a return similar to short-term interest rates. Mutual funds are not FDIC insured and are regulated by the Securities and Exchange Commission’s (SEC) Investment Company Act of 1940. Brokerage firms and many banks offer mutual funds. Interest rates are not guaranteed so a bit of research can help find a mutual fund that has a history of good performance. If you find a good fund and contribute to it regularly you stand to make a decent return on your investment…although there is a risk that you could money as well!
FINAL THOUGHTS: Savings allow individuals to squirrel away money while earning modest, low-risk returns. Due to the large variety of savings vehicles, a little research can go a long way in determining which will work hardest for you. And, since interest rates are constantly changing, it is important to do your homework before committing your money to a particular savings account, helping you make the most of your savings. No matter what you choose, saving is essential to financial readiness and utilizing the power of compounding interest can help you reach your financial goals more quickly!
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