How do you make your money work for you? Your hard-earned cash could be working to advance your life goals, but sometimes it’s difficult to know how to make that happen. Fortunately, there are several ways to grow your money. And the good news is it can be as simple as choosing the right account for your savings.
The key is to do your own research and start small. You don’t have to go from only having a checking account to gaming the cryptocurrency markets overnight. (On that note, gaming the crypto markets might not be your best bet at this juncture.)
Instead, start by trying to make your savings work for you. If your life savings is sitting in the checking or savings account you opened in high school, your money is simply not growing at its potential capacity.
Your savings efforts should be commended, but if your money is sitting there collecting something like .01% interest every year, it’s basically collecting dust. Instead, that money could potentially be earning more interest each year.
What are the Different Types Of Savings Vehicles?
If you’re looking to grow your savings, you may want to consider an account with a good interest rate that will let you access your cash at any time.
There’s some risk that comes with keeping savings in a checking account. Because your debit card is attached to your checking account, you may accidentally spend some of your savings. One savings solution is to put your money where you can’t see it. Certainly, you don’t want to keep your money too far away, but you also don’t want to keep it in the most visible account you have.
Keeping your money in your savings account is, well, a given. I mean, it’s in the name. While some may keep their savings in investment accounts because they could yield more returns, it’s smart to keep much of your emergency fund in a savings account.
A savings account provides quick access to your money if the need arises. The drawback? Your money is not working as hard as it might otherwise. In fact, most savings accounts yield .01% interest , which is not exactly good gains.
Money Market Accounts
A money market account is very similar to a high-yield savings account. In other words, it functions the exact same way a savings account does, but there’s a higher interest rate, which means your money grows more every year than it would in a traditional savings account.
Money markets have the advantage of liquidity, too; You can typically take out and put in money the same way you would with checking or savings accounts.
The interest rates on money market accounts vary— so it’s best to do a little research on current rates first .
Other Ways to Make Your Money Work For You
There are three pretty common ways to have your money work for you if you are willing to take on an appropriate amount of risk. The first is to use a high-interest account as mentioned above. The second is to use a CD. And the third is to invest in the market.
A CD, or certificate of deposit, is an account that allows you to gain interest on your money if you keep it in the account for a certain amount of time. CD interest rates can get up to about 3% .
Typically, you’ll need to keep your money in the CD for a term of six months to five years, depending on the account you choose. While knowing there’s a 3% return coming your way is a nice perk, the con is that you generally can’t touch your money while it’s in the CD—there’s a penalty if you do.
Another common option is to open an after-tax investment account, and invest your money in the market. An investment account allows you to put your money into various stocks, and potentially earn a return in the market. While the reward can be greater, so is the risk. You run the risk of yielding negative returns in the stock market, effectively losing money.
While you can mitigate some of this risk by investing for the long term, which essentially means only investing money that you won’t need at the drop of a hat, you wouldn’t want to invest savings you want to use soon. Essentially, putting your money in an investment account doesn’t offer your money the same liquidity as a money management account.
While your money may not earn as much interest in a high-interest savings vehicle as opposed to the stock market, it can be quite a bit safer. That’s why putting your emergency savings, or the savings you want to use in a year to buy a house, into something like a cash management account might be the right idea.
If you need to be able to tap into your emergency fund when your apartment gets asbestos and you suddenly need to move, you want it in a liquid account you can withdraw from at any time. However, it’d be nice to give your emergency savings the option to grow, too. And, this same logic holds true with house savings or car savings that you might want to use in the next year or two.
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