I want to save money for a down payment on a house in two years, as well as increase my emergency fund in case I have a financial emergency or, worse, lose my job. I am currently contributing money to my 401(k) each month. Im unsure about where to keep these nonretirement savings. Can you help?.
This is an excellent question, and it’s especially pertinent given the difficult inflationary environment we’re in right now. People typically pay far more attention to stocks and bonds than to cash in general. That makes perfect sense, especially considering the past few years when cash investments yielded almost nothing. However, it makes sense to monitor our cash investments carefully now that interest rates have risen and many accounts are yielding respectable returns.
Your objective is to identify the best trade-offs between safety (the return on your investment), yield (the return on your investment), and liquidity (the ease and speed with which you can access your money). This is definitely not one-size-fits-all. The decisions that are best for you will rely on your time frame, risk tolerance, and personal objectives. For instance, you may choose to keep your house savings in a separate account from your emergency savings or daily spending money.
Generally speaking, the lower the rate of return, the safer and more liquid the account. The higher the return, the more restrictions and protections financial institutions impose. Nevertheless, convenience and safety don’t always correlate perfectly, so it pays to compare prices and carefully read the fine print. Lets take a look.
With interest rates on the rise, finding the best place to stash your cash in 2024 is more important than ever. This guide will analyze two leading financial resources, Bankrate and Charles Schwab, to provide you with a comprehensive overview of the best short-term investment options available.
Key Considerations for Short-Term Investments
Before diving into specific options let’s review the key factors to consider when choosing a short-term investment:
- Time horizon: How soon will you need access to your money? This will determine the level of risk you can take.
- Risk tolerance: How comfortable are you with potential fluctuations in your investment value?
- Liquidity: How easily can you access your money when you need it?
- Returns: What kind of return are you hoping to achieve?
Best Short-Term Investment Options in 2024
Based on the information from Bankrate and Charles Schwab, here are the top short-term investment options in 2024:
1. High-Yield Savings Accounts:
- Overview: A safe and accessible option, high-yield savings accounts offer higher interest rates than traditional savings accounts.
- Who are they good for? Risk-averse investors who need easy access to their money.
- Risks: Minimal risk, as these accounts are FDIC-insured.
- Rewards: Higher interest rates than traditional savings accounts.
- Liquidity: Highly liquid, with easy access to funds.
- Where to get them: Online banks typically offer the highest interest rates.
2. Cash Management Accounts:
- Overview: These accounts offer a combination of features, including checking, savings, and investment capabilities.
- Who are they good for? Investors who want flexibility and easy access to their money.
- Risks: Low risk, as these accounts are typically invested in safe, low-yield investments.
- Rewards: Interest on your holdings, check-writing capabilities, and other banking features.
- Liquidity: Highly liquid, with easy access to funds.
- Where to get them: Robo-advisors and online brokers.
3. Money Market Accounts:
- Overview: Similar to high-yield savings accounts, money market accounts offer higher interest rates but may require a higher minimum investment.
- Who are they good for? Investors who need their money in the near future and want easy access.
- Risks: Low risk, as these accounts are FDIC-insured.
- Rewards: Higher interest rates than traditional savings accounts.
- Liquidity: Highly liquid, with easy access to funds.
- Where to get them: Banks and credit unions.
4. Short-Term Corporate Bond Funds:
- Overview: These funds invest in bonds issued by corporations, offering diversification and regular interest payments.
- Who are they good for? Risk-averse investors who want a diversified portfolio of bonds.
- Risks: Low risk, but not insured by the government.
- Rewards: Regular interest payments and diversification benefits.
- Liquidity: Highly liquid, with easy access to funds.
- Where to get them: Mutual fund companies and online brokers.
5. Certificates of Deposit (CDs):
- Overview: CDs offer a fixed interest rate for a set period, with penalties for early withdrawal.
- Who are they good for? Investors who are comfortable locking in their money for a specific period.
- Risks: Low risk, as these accounts are FDIC-insured.
- Rewards: Higher interest rates than savings accounts, but with limited access to funds.
- Liquidity: Low liquidity, with penalties for early withdrawal.
- Where to get them: Banks and credit unions.
Choosing the Right Option for You
The best short-term investment for you will depend on your individual circumstances and financial goals. Consider the factors mentioned above and research the specific options available to make an informed decision.
Additional Resources
- Bankrate: https://www.bankrate.com/investing/best-short-term-investments/
- Charles Schwab: https://www.schwab.com/learn/story/looking-best-place-to-stash-your-cash
By carefully analyzing your needs and exploring the available options, you can find the perfect place to stash your cash in 2024 and achieve your financial goals.
Choices for your everyday and emergency cash
The following accounts are designed to assist you in covering regular or unexpected costs rather than to provide a large return. Still, it makes sense to look for the best value for your money.
The following are all insured by the FDIC up to $250,000 per account holder, per bank, per ownership category and therefore very safe. The National Credit Union Administration (NCUA) insures checking and savings accounts at credit unions up to the same limits.
- Interest-bearing checking account: This is your workhorse for regular expenses; it lets you write checks and access your money with ease via an ATM or debit card.
- Savings account: It’s likely the category with the most variation in terms of features and yield, so it’s a good idea to compare rates. They typically offer higher interest rates than checking accounts, but there might be limitations like capped withdrawal amounts and debit card usage. You might also need to keep a comparatively high minimum balance in order to receive the maximum return.
- Money market accounts: By placing your funds in reputable, short-term debt, institutions are able to offer comparatively high interest rates on these accounts. Similar to high-yield savings accounts, they typically offer higher yields than checking accounts but may have limitations, such as restricted check writing rights (above certain minimums).
- Banks, credit unions, and other financial institutions offer short-term certificate of deposit (CDs), which have a fixed yield until they mature. Shorter-term CDs typically have maturities of three months to one year; the higher the return, the longer the term to maturity Penalties apply if you withdraw early.
Higher returns come with more risk
Alternatively, you might think about investing your money in a money market fund if you have a brokerage account. These are, technically speaking, a class of mutual funds that prioritize stability and capital preservation. The underlying investments are conservatively invested in very short-term IOUs. It is noteworthy that money market funds are not covered by the FDIC; however, they are insured by the Securities Investor Protection Corporation (SIPC) up to $500,000 per investor (capped at $250,000 in cash). They frequently (though not always) provide higher yields than the aforementioned accounts.
Where to Park Cash: Guaranteed 5-6%
FAQ
Where is the safest place to put your money during a recession?
What is the charitable deduction for 2021?
For the 2021 tax year, the charitable deduction is even better, at least for those who file a joint return. For 2020, the charitable limit was $300 per “tax unit” — meaning that those who are married and filing jointly can only get a $300 deduction.
How much money can a married person deduct in 2021?
For the 2021 tax year, however, those who are married and filing jointly can each take a $300 deduction, for a total of $600. The $300 deduction is for donations made in cash, which includes currency, checks, credit or debit cards, and electronic funds transfers.
What if I don’t itemize MY 2021 tax return?
If you won’t be itemizing your deductions on your 2021 federal tax return — and most taxpayers won’t — be sure to take advantage of the special $300 charitable-giving deduction that Congress authorized spring 2020 in response to the pandemic.
Should you keep cash on the sidelines?
By keeping cash on the sidelines, you put your portfolio in an antifragile position because you’ll be able to benefit from market chaos by buying quality stocks at bargain prices. There’s no magic number for how much cash you should have on hand.