Saving money is a crucial part of your financial strategy. It is essential to make sure you are putting your savings in the right places so you can maximize the returns on your investments.
In this article, we will discuss some of the best places to put your savings in to get reasonable returns with lower risk. We will look at how each option works and what factors should be considered when deciding where to invest your money.
- Savings Accounts
Savings accounts are probably one of the best-known banking products. They offer customers a secure way to save their money while earning interest on their deposits. Banks offer a variety of savings accounts with different features, such as ATM access, debit cards, online banking, and bills payment.
While they offer nominal interest rates, savings accounts are convenient for stashing money. They are easy to open and can provide liquidity in case of emergencies.
Savings accounts are also insured by the Federal Deposit Insurance Corporation (FDIC). The FDIC can cover each depositor for up to $250,000 in case of bank failure/closure.
- Money Market Funds
Money market funds invest in low-risk, short-term securities such as treasury bills, certificates of deposits, federal agency notes, repurchase agreements, and corporate commercial paper. These funds offer investors a way to earn higher returns than traditional savings accounts while maintaining a low level of risk. They are often offered by brokerage firms and allow investors to access the money markets without having to buy the securities directly.
- High-Yield Savings Accounts
High yield savings accounts let you earn higher interest than traditional savings accounts. This is because most accounts of this type often require a larger initial deposit amount. Withdrawals or outbound transfers are also limited to six per month before overdraft charges apply. Deposits are also FDIC insured.
One disadvantage with high-yield savings accounts, though, is that interest rates fluctuate. The advertised annual percentage yield (APY) may change after the account has been opened. Still, the returns are still higher than those of regular savings accounts.
- Certificates of Deposits (CDs)
CDs are another means to save money and earn higher interest rates than what you would get from a regular savings account. CDs are offered by banks and credit unions, and they require you to lock in your money for a set amount of time – usually months or years. In exchange for this commitment, you will receive higher interest rates than what is available from other savings accounts.
The typical maturity periods for CDs are 12 months and 60 months. If you need to withdraw your money before the maturity date, there may be penalty fees involved.
- Money Market Deposit Accounts (MMDA)
MMDAs are a type of savings account that typically offer higher interest rates than traditional savings accounts while still providing easy access to funds. MMDAs are often offered by banks and credit unions and are insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) up to the legal limits.
Money market deposit accounts work like any other savings account but with some restrictions. They usually require a higher minimum balance than regular savings accounts, and they may also limit the number of transactions you can make each month. Some also offer tiered interest rates, so the interest rate you earn increases as your account balance grows.
Bonds are essentially loans made by investors to borrowers. When an individual, company, or government needs to raise capital, it can issue bonds to investors. You can then purchase these bonds, effectively lending money to the borrower. In return, the borrower pays interest on the bond/s and, upon maturity, returns the principal investment to you.
Bonds are a popular investment option that offers a predictable income stream and a defined term. They are low-risk investment options, particularly government bonds.
- Treasury Bills and Notes
US Treasury bills and notes are short-term and long-term debt securities, respectively, issued by the US Department of the Treasury. They are sold at a discount to their face value and pay interest at maturity. Treasury bills have maturities of less than one year, while Treasury notes have maturities of one to ten years. Both types of securities are backed by the full faith and credit of the US government, making them among the safest investments in the world.
Any of the banking products and investments discussed above can help you grow your savings. As with any investment, it’s important to weigh the risks and benefits when deciding where to put your money in.