Are you saving money for a big purchase within the next year? Whether you’re planning a kitchen renovation, hoping to move across the country, or saving for a family vacation, you don’t want to risk spending the cash before you need it.
At the same time, it would be a mistake to lock up the money so tight that you can’t access it when you need it.
Luckily, you have several options for securely stashing hard-earned cash, all of them safer than your wallet, mattress, or loose floorboard. Let’s dive into the six best places to stash money you intend to spend within the next year.
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Your savings account
Savings accounts are among the safest places to store cash for future use.
For one thing, the Federal Deposit Insurance Corp. (FDIC) insures the deposits at most banks. The FDIC guarantees that if a banking institution fails, you won’t lose the money you’ve deposited in the bank. Instead, the federal government insures such accounts for up to $250,000.
The National Credit Union Administration, or NCUA, similarly insures deposit accounts at credit unions. The NCUA is a federal institution that functions much like the FDIC.
If you store more than $250,000 in a single bank or credit union savings account, you could lose any amount over the insurance limit. But the average American doesn’t store nearly that much in their savings account.
And even with fears of a recession on the horizon, experts aren’t predicting huge bank collapses like those we saw during the Great Recession.
Finally, many savings accounts today pay out less than 1% interest. That’s honestly not much, but you can make a bit more if you keep your money in one of the best savings accounts, such as a high-yield savings account.
Depending on how much money you store in savings and how high your account’s interest rate is, you won’t just be storing your money for the future — you’ll be making money too.
Your checking account
A checking account might be a riskier place to store cash than a savings account if you are someone who can’t keep impulse purchases under control. But if you keep your spending on a short leash, a checking account could be a solid place to stash the cash you will need within a year.
The FDIC (or NCUA if you bank with a credit union) insures checking accounts for up to $250,000, just as it does with savings accounts. In contrast to investing in the stock market, opening a checking account ensures you don’t need to worry about a market downturn draining your funds.
Unlike savings accounts, most checking accounts aren’t interest-bearing. However, a few banks, like Axos, offer up to 1.25% APY (annual percentage yield) on checking accounts. If you’re set on using a checking account to store your savings, an interest-bearing account will help you maximize savings.
A 1-year CD
Do you worry you’ll be tempted to spend that cash you’re saving? If so, lock it up in a one-year certificate of deposit (CD), which functions a bit like a savings account with extra restrictions.
First, CDs typically have a penalty attached if you withdraw the money early, usually equivalent to a few months’ interest. You effectively promise your bank that you’ll store a certain amount of money with it and won’t remove it until the CD’s term is up.
So, remember not to purchase a one-year CD if you will need the money sometime within the next 12 months — for example, nine months from now.
Second, in contrast to most checking accounts, you earn interest on a CD. Your interest rate still depends on your bank, term length, and amount of money stored, but you should close out the CD with a higher amount of money than what you deposited.
If you’re saving money to do something fun in a year but still want account access in case of an emergency, a savings account or money market (discussed below) is a better choice than a CD.
A money market account
Like a savings account, a money market account usually has a higher interest rate than a standard checking account. These accounts typically have higher interest rates than savings accounts too. If you have a substantial chunk of cash that you still want to access as needed, you’ll probably earn more interest opening a money market account than a savings account.
In contrast to certificates of deposit, money market accounts may include debit card and check access. However, some banks may limit how often you can withdraw funds from a money market account each month.
Most money market accounts require a higher minimum deposit amount than a run-of-the-mill savings account. And your interest rate may decline if your balance dips beneath a range set by your bank.
Investing in the stock market can yield rewards, but it also comes with big risks, particularly in the short term. In contrast, investing in the U.S. government in the form of Treasury bills guarantees that you’ll get back the money you invested plus a little extra in interest.
Unlike Treasury notes and bonds, Treasury bills have short terms that range from as low as a few days to as high as 52 weeks. If you want to keep your funds out of sight and out of mind while earning a guaranteed return on investment, a Treasury bill can be a solid choice.
Short-term bond funds
A short-term bond fund is another place to keep money you'll need relatively soon. Short-term bond funds usually contain bonds that mature in less than five years.
In most years, you will earn a modest positive return on a short-term bond fund. However, it is not unheard of for returns to be negative over a 12-month period. For example, many short-term bond funds have negative returns thus far in 2022.
So, this option carries bigger risks than others on this list.
Saving cash today to use a year down the line is easy and safe, especially if you park your money in an FDIC-backed bank account or Treasury bill.
Depending on the type of account you choose, you even stand to earn a little extra cash, which definitely won’t happen if you squirrel away your extra cash in an envelope under the mattress.
Lend your future self a helping hand by assessing your money storage options and putting away some money today.
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