Savings Strategies: Where To Invest Right Now

There are many options for where to invest your savings, each with different levels of risk and potential returns. Here are some of the best options for where to invest your savings right now:

- High-yield savings accounts: These accounts offer a higher interest rate than a traditional bank savings account, and your money is easily accessible. They are a good option for those who need to access cash in the near future or who want to avoid the risk of losing money.

- Certificates of deposit (CDs): CDs are similar to savings accounts but usually offer a higher interest rate, especially with larger and longer deposits. CDs are best for those who don't need immediate access to their money and can keep it in the account for a specified amount of time.

- Money market funds: These funds invest in low-risk debt securities and typically provide returns similar to short-term interest rates. They are highly liquid, so you can withdraw your money at any time.

- Treasury bills and notes: These are backed by the full faith and credit of the US government and are exempt from state and local taxes. Treasury bills have a maturity period of a few days to a year, while treasury notes have maturities of two, three, five, seven, and ten years.

- Dividend stock funds: Dividend stocks are stocks that offer a cash payout, and a fund packages a group of these stocks into one easy-to-buy unit. They are suitable for investors looking for income and those who can stay invested for longer periods.

- Index funds: These funds track a specific stock market index, such as the S&P 500, and provide diversification by holding stocks of different companies. They are suitable for long-term investors who want to mitigate the risk of stock investments.

- Robo-advisors: These platforms automatically invest your money in index funds and ETFs based on your goals and risk tolerance. They are a good option for those who want a hands-off approach to investing.

High-yield savings accounts

• High-yield savings accounts are considered safe investments. Many of the banks that offer these accounts are insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA), which means your funds will be safe even in the event of a bank collapse.
• High-yield savings accounts have proliferated in recent years due to the rise of online banks and fintechs competing with traditional banks.
• As of April 2024, the average APY for all types of US savings accounts was 0.46%. However, several high-yield savings accounts offered rates of 5% or higher.
• High-yield savings accounts are best suited for those who need to access cash in the near future or those who want to avoid the risk of losing their money.
• Online banks tend to offer higher interest rates than traditional brick-and-mortar banks because they have lower overhead costs.
• When choosing a high-yield savings account, consider factors such as the interest rate, initial deposit, minimum balance, fees, and compounding interest.
• Some high-yield savings accounts have no monthly fees or minimum deposit requirements.
• High-yield savings accounts can be a great place to save for specific goals, such as an emergency fund, a down payment on a new home, or short-term financial goals.

Long-term certificates of deposit

• Safety and Returns: CDs are considered a safe investment option because they are FDIC-insured, meaning your money is protected up to a certain limit. While CDs offer a higher interest rate than savings accounts, there is still a risk of losing purchasing power over time due to inflation if the interest rates are too low.
• Term Lengths: Long-term CDs typically have maturities of one year or more, with common term lengths being one, three, and five years. The longer the term, the higher the interest rate you can expect.
• Suitability: Long-term CDs are well-suited for retirees or risk-averse investors who don't need immediate income and are willing to lock up their money for a fixed period. They are also a good choice for those who need money at a specific time in the future, such as for a home down payment or a wedding.
• Reinvestment Risk: One thing to consider with long-term CDs is reinvestment risk. If interest rates fall, you may earn less when you reinvest your principal and interest in new CDs with lower rates. On the other hand, if interest rates rise, you won't be able to take advantage of the higher rates since your money is already locked into a CD.
• Early Withdrawal Penalties: It's important to note that withdrawing your money from a CD before the maturity date will likely result in early withdrawal penalties. These fees can be significant, so it's best to avoid early withdrawals if possible.
• Finding the Best Rates: To find the best rates for long-term CDs, it's a good idea to compare rates from different banks and credit unions. Online banks often offer higher rates than traditional brick-and-mortar banks. You can use resources like Bankrate's list of best CD rates to find the most competitive offers.
• Alternative Options: If you're looking for more flexibility or higher potential returns, there are alternative investment options to consider. These include high-yield savings accounts, money market accounts, corporate bonds, dividend stock funds, and more. Each option has its own risks and rewards, so be sure to do your research before investing.

Money market funds

• Money market funds are not the same as money market accounts (MMAs). Money market funds are investment products without FDIC insurance, while MMAs are bank products that are FDIC-insured.
• Money market funds aim to maintain a net asset value (NAV) of $1 per share. This requirement forces fund managers to make regular payments to investors, providing a regular flow of income.
• Money market funds are regulated by the U.S. Securities and Exchange Commission (SEC), which has implemented rules to enhance their stability and resilience.
• The types of debt securities held by money market funds are required to be very short in maturity and high in credit quality.
• Money market funds can be classified into different types, including prime money funds, government money funds, Treasury funds, and tax-exempt money funds.
• While money market funds offer better returns than bank accounts, they are sensitive to interest rate fluctuations and monetary policy changes.
• Money market funds do not have entry or exit charges, and some funds provide tax advantages by investing in municipal securities that are tax-exempt.

Overall, money market funds can be a good option for those seeking a safe, liquid, and low-risk investment with modest returns. However, it is important to note that they are not insured by the FDIC, and there is a risk of losing money.

Treasury bills and notes

Treasury bills, notes and bonds are U.S. government debt securities that differ in their duration, the interest they pay, and the amount of interest rate risk they face. They are considered low-risk investments because they are issued and backed by the U.S. government. They are also budget-friendly for investors, as they can be purchased in $100 increments, and they are exempt from state and local taxes.

Treasury bills mature within a year and are sold at a discount to their face value, which you receive at maturity. They do not pay interest, so your return is the difference between the purchase price and the par value at redemption. Treasury bills are a good option if you need to access your cash within a year and want to avoid the risk of losing money.

Treasury notes have maturities of two to ten years and pay interest every six months. They are a good option if you want a low-risk investment with a longer maturity than Treasury bills but don't want to tie up your money for as long as you would with Treasury bonds.

Treasury bonds have long maturities of 20 to 30 years and pay interest every six months. They carry slightly more risk than shorter-duration Treasury securities. They are a good option if you want a stable investment with a fixed rate of return and can commit to holding your investment for the long term.

You can buy Treasury bills, notes and bonds directly from the U.S. government at TreasuryDirect.gov or through a broker. They are sold at monthly online auctions, and you can also buy them in bulk through Treasury exchange-traded funds (ETFs) and mutual funds.

S&P 500 index funds

The S&P 500 index is made up of around 500 of the largest American companies, including some of the most successful companies in the world, such as Amazon and Berkshire Hathaway. By investing in an S&P 500 index fund, you get immediate diversification, owning a piece of all the companies in the index. The fund includes companies from every industry, making it more resilient than many other investments.

Over time, the index has returned about 10% annually. These funds can be purchased with very low expense ratios, making them some of the best index funds available.

You can buy S&P 500 index funds from any broker that allows you to trade ETFs or mutual funds. ETFs are typically commission-free, so you won't pay any extra charges. On the other hand, mutual funds may charge a commission and require a minimum purchase.

When deciding whether to invest in S&P 500 index funds, it's important to consider your risk tolerance and investment goals. These funds are generally suitable for investors with a long-term horizon who are comfortable with the volatility associated with investing in stocks.

Additionally, it's worth noting that the performance of the S&P 500 can vary from year to year. For example, the index rallied after its pandemic-driven plunge in March 2020 but performed poorly in 2022. As such, investors should stick to their long-term investment plan when investing in the S&P 500.

Frequently asked questions