Have you recently come into some extra cash? It doesn’t matter whether you’ve inherited money, earned a bonus, or sold your house for a profit. Having this spare money gives you a wonderful opportunity to build up your savings or solidify your retirement plan. But, when it comes to choosing the right place to stash your money isn’t always simple.

You should consider your return on investment, as well as the liquidity and the time you have before you have to access the funds. If you are deciding where to save your money, you should also consider security and investment costs.

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To help guide you in with this decision, here are 8 strategies for keeping your money in the best place possible.

1. The ability to withdraw money.

My first tip on finding the place to keep your hard-earned money is accessibility. By that, I mean you should consider how often you’ll need to withdraw money, as well as the convenience. For example, with a savings account, this isn’t a problem at all. After all, you can hit up an ATM, write echecks, or make an electronic transfer for upcoming purchases, like rent or groceries.

The opposite is true with certificates of deposit and retirement accounts like 401(k)s, IRAs, or annuities. Since these are intended to be long-term investments, they aren’t as liquid. If you do make an early withdrawal, you may incur a penalty.

How much will these penalties set you back? That depends. If you withdraw your money early from a 401(k), you may be subject to a 10% tax penalty, plus any federal and state income taxes that are due. Also, if you take money out of your 401(k), annuity, or any other qualified retirement plan before the age of 59 ½, the IRS imposes a 10% tax penalty.

With CDs, the size of the penalty is determined by a number of factors. These include the bank, CD term, and yield. Generally, most banks charge an early withdrawal penalty based on the rate of interest paid on CDs.

In short, your choice of account depends on whether you are likely to need liquid cash in the near future.

2. Rate of interest.

Account types that offer higher rates of interest or investment income are not all created equal. Rates and investment dollars can also differ among banks or brokerages.

You can earn more money by keeping your cash in certain types of accounts, but in exchange higher rates often come with fewer access options. Interest may also be earned only if you meet the minimum balance requirements in certain accounts.

Typical checking accounts offer you APYs of less than 0.01 percent. While the highest paying high-yield savings account offers an annual percentage yield of 0.65 percent. In this way, a high-yield savings account is an appealing option for those looking to grow their savings while also being able to quickly access funds when needed.

You could also look more into money market accounts. They’re a cross between savings and checking accounts. The rates are usually higher than a savings account with more options for cash access, such as checks and debit cards. However, you may only withdraw six times a month as a free service.

Typically, with long-term investments, you’ll receive a higher interest rate. The catch? You can’t access your money as easily. Also, despite the ups and downs of the market, long-term investments have usually outpaced inflation.

3. Support.

Statista reports that U.S. online digital banking users exceeded 161 million users in 2019. That represents an impressive 20% increase from 2014. However, does that mean people are turning away from traditional banks and credit unions? Not exactly. Some folks still prefer face-to-face interactions with banking representatives.

Moreover, despite their convenience, online banks are usually more cost-effective than their on-site counterparts because of their lower overhead. As a result, you may not have the same level of in-person support. This is important since most online and traditional banks and credit unions provide full-service accounts, including checking and savings accounts. And, various other products are also available through online banking, including CDs, money market accounts, and loans.

In short, it’s possible for some people to manage their finances more or less independently online or through an app. Others, however, may prefer having that in-person assistance at their bank branch.

4. The distance between you and your goal.

Consider how much money you need to save and how long it will take you to achieve your financial goal. Investing instead of saving should be your focus if it is expected to last more than several years. It’s similar to free money, as you won’t have to work daily for it.

“Anything past four or five years is no longer savings,” Todd Christensen, education manager for the nonprofit debt relief service MoneyFit, told Nerdwallet. “You should see anything longer than four or five years instead as an opportunity to invest and build your net worth.”

Short-term financial goals.

Examples of short-term savings goals would be saving for a vacation, a small emergency fund, or home improvements within a year. As such, you may want to consider high-yield savings accounts, money market accounts (MMAs), or cash management accounts (CMAs).

Medium-term financial goals.

A major wedding, a down payment on a house, or an emergency fund that covers three to six months of expenses might take a year or more to build. You should keep your money separate and in a safe account that earns a little interest. Most of these products aren’t designed to build wealth, because their interest rates don’t exceed inflation.

Suggestions would be the aforementioned high-yield savings account, MMAs, and CMAs. CDs are another popular option well.

Long-term financial goals.

If you want to save for or invest in something that will take a decade (or more), such as retirement or a college fund for your child, here are some ideas.

Investment accounts like a 401(k) or IRA to fund your retirement. If you saving for your child’s education, then you could invest in a 529 plan.

5. Added fees and penalties.

With some bank accounts, you will have to pay a penalty if you withdraw the cash before a certain date. In turn, this could reduce your interest earnings.

Fees are charged by some online, traditional banks, and credit unions, but not all of them. In bank fees alone, the average individual can spend more than $300 per year. Similarly, a basic bank account may have a monthly fee of $5, whereas a rewards bank account may have a monthly fee of $12.

The following are some of the reasons you may incur fees and penalties on checking and savings accounts:

• By choosing to receive a paper statement.
• Your high-yield savings account has been withdrawn more than six times in one month.
• You’ve closed the account before a certain time period.
• You made an early withdrawal.
• Within a statement cycle, your balance dropped to a specified amount.
• The cost of monthly service or maintenance.
• A daily average balance is not maintained.

If you want to maximize your money’s growth, you should park your money somewhere with few or no fees.

6. Risk tolerance.

All deposits made by consumers to banks/credit unions are guaranteed by the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA). The amount of deposit insurance that each depositor, institution, and account is covers is $250,000.

Unless a bank or credit union becomes insolvent, most people will not lose their deposits. But, if your cash may have come from an inheritance, a bonus at work, or when you sold your house for a profit, instead of only stashing it in a savings account, you may want to consider other safe options.

You can invest your money relatively safely in CDs and government securities of the United States. Although you will receive some return on your investment with either of these options, your first priority will likely be to prioritize liquidity and relatively low fees over high returns.

Riskier investments.

Purchasing an annuity could be another possibility. As long as you work with an annuity company that’s financially sound, you’re guaranteed lifetime payments.

Just be aware that annuities, as well as securities like stocks, bonds, and mutuals, are not FDIC-insured. However, annuities are backed by state-level guaranty associations. But, it’s still possible to you to lose your principal if you invest in these riskier options.

“The reward for taking on risk is the potential for a greater investment return,” notes the SEC. “If you have a financial goal with a long time horizon, you are likely to make more money by carefully investing in asset categories with greater risk, like stocks or bonds, rather than restricting your investments to assets with less risk, like cash equivalents.”

For short-term financial goals, however, cash investments may be a good option. Investors in cash equivalents should be aware of inflation risk, or the risk that inflation will outpace the rate of return over time.

7. Automate your savings.

The vast majority of banks allow you to transfer money between your checking and savings accounts electronically. You can decide when, where and how much money is transferred or even split your direct deposit, so a portion goes directly into your savings account every payday. Moreover, there could be auto-enrollment options for retirements plans like an annuity or 401(k).

Bonus tip: Setting up automated transfers and splitting your direct deposit are easy ways to save money because you don’t have to think about them, states Bank of America. And, as an added bonus, you will generally be less tempted to spend the money.

8. You aren’t required to choose just one.

If you’re interested in a few of the types of accounts outlined above, you may spread your funds across several of them. Remember, what is right for you today may not be right for you in a few years, so periodically review your money management strategy and make adjustments as needed.

As well as comparing different bank accounts and investments, you need to check the fees and returns you can expect as these can change over time and affect which is right for you.

Frequently Asked Questions About Saving Locations

1. What is the best place to save money tax-efficiently?

Of the options described above, bonds offer the best tax efficiency. State and local taxes are usually not applicable to federal bonds. Tax-exempt municipal bonds are generally not regarded as safe federal bonds, despite being tax-exempt on all levels.

2. How can I keep my money safe from inflation?

Increasing inflation rates have been affecting consumers’ savings and spending habits in ways they haven’t seen in decades. So, how can you protect yourself?

While you could spend less and avoid items that have high inflation rates, such as new cars. Also, you should focus more on investments instead of savings. Incorporate investments that will rise with inflation into a diversified portfolio, such as Series I savings bonds and Treasury Inflation-Protected Securities (TIPS).

3. Where can you save money to splurge?

If you are planning to splurge on impulse purchases, liquidity and capital preservation should be your top priorities. To make sure the money you need will be available when you want it, you may want to open a savings account, either traditional or high-yield.

4. Where should you park your money during uncertain times?

Money safety is a savvy move during uncertain times. While their money waits in a savings account at a big bank, many Americans forfeit a guaranteed return as a result of their inaction.

FDIC-insured online savings accounts are among the best options for saving money online. Ascent, as an example, is secure and earns a high yield of up to 5.12% APY.

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