Places to save your extra money

There are few joys greater than a sudden financial windfall!

This could be in the form of an unexpected bonus at work, high returns on your investments, or a long-forgotten debt finally repaid. But what can you do with the extra cash? You could spend it right away and be done with it, but that doesn’t always make financial sense.

One good option is to deposit extra cash into savings or investments. This could be done by applying it towards a savings goal like your emergency expenses fund, savings for your children’s education, or even your vacation fund. Making that extra money grow and work for you can be even more satisfying than earning it in the first place.

Certificates of deposit (CDs) are fixed deposit accounts that store money for a set period while earning interest. Unlike a savings account, CDs operate on the understanding that the money will not be withdrawn until it matures. In other words, you trade off liquidity for a higher interest rate for your money than an average savings account or money market account. You can withdraw a CD before maturity, but that will likely attract penalties and losses on your expected return.

CDs are one of the best places to save your money and are ideal for long-term financial goals. They are offered by most traditional banks, credit unions, and online banking institutions.

For example, the Raisin platform currently offers a wide range of CD rates and terms from its partner financial institutions. For current rates, click here.

As the name suggests, most often, this type of account offers a much higher rate of interest than CDs or a standard savings account. The annual percentage yield (APY) on a high-yield savings account can be as high as 20 to 25+ times the national savings average.

While this sounds exciting, interest rates on high-yield savings accounts can change in accordance to Federal Reserve rates. Compared to a CD, for instance, you gain the convenience of liquidity while losing the benefit of a fixed rate.

High-yield savings accounts were first introduced by online banks and the resulting competition in interest rates. The best high-yield savings accounts have no additional costs, such as maintenance fees, and offer low or no minimum deposit requirements. They are a great mid-term savings option that gives you easy access to your funds whenever you need them. Plus, there are there are no limits on the number of savings accounts you can have.

For example, the Raisin platform currently offers a range of high-yield savings and money market deposit accounts from its partner banks and credit unions. To view current rates, click here.

A money market deposit account is a short-term savings option that pays interest on your deposits based on the prevailing rates in money markets. It is offered by banks and credit unions and often pays a higher interest rate than your average savings account.

Money market accounts are a good option if you plan to save your money for a particular expense, such as a down payment on a house. Some money market accounts come with service charges and minimum balance requirements, so check the terms before opening one.

Unlike employer-sponsored 401(k) retirement funds, most individuals over the age of 18 can open an individual retirement account (IRA). These typically come in two types:

• A traditional IRA lets you contribute pre-tax income to fund and grow your account. Withdrawals that can be made after the age of 59.5 years will be taxed as current income.

• A Roth IRA is funded with after-tax dollars and can be withdrawn at the age of 59.5 generally without further taxes.

Maximum contributions for both types of IRAs are subject to maximum contribution limitations set by the IRS. As of 2023, contributions are capped at $6500 per year for individuals under 50 years and $7500 for people over 50.

IRAs are long-term investments that offer high returns with lower liquidity. You can withdraw funds from your IRAs before the mandated age, but that will typically attract income tax and an additional 10% tax.

You can also consider a Treasury Bill also known as a T-Bill. T-Bills are tradeable short-term securities backed by the federal government with maturity periods ranging from four weeks to one year. They offer immediate liquidity, are easy to buy and sell, and are one of the safest investment options.

You can buy a T-Bill for less than face value and cash it in for full face value when it matures. You also have the option of selling it before maturity.

A short-term bond is a debt security that matures in one to four years. It is relatively low-risk compared to long-term bonds and can fetch higher returns. But unlike T-Bills or CDs, it does not protect your principal investment. That’s because the value of debt securities goes down when interest rates go up. This means that you could lose interest and a portion of the principal that you were expecting.

Investing in short-term bonds is subject to interest rates and other market factors. They are less volatile and can result in high returns when interest rates rise. You should consider short-term bonds to store extra money to add stability to your investment portfolio.

For investors with a higher risk threshold, there are also various high-risk, high-return options for storing money. Let’s tackle them one by one:

• Stocks: A wisely-invested stock portfolio can gather high returns over time but require occasional patience to endure high and low swings in the stock market. As consumer services make it increasingly easier to invest money in stocks, it becomes increasingly important to do ample research before investing money in publicly traded companies or index funds.
• Real estate: Buying, flipping, or even renting real estate can be a potentially rewarding long-term investment, although the real estate market is subject to mortgage rate fluctuations and inflationary pressures that make it harder to predict potential returns on an investment.
• Precious metals: Gold, silver, and other precious metals like platinum have long been considered safe long-term money-making opportunities. The biggest benefit is that they are a hedge against inflation and their price tends to move independently of stock price movement. That said, they are not immune to price falls.

Whether it’s extra income or regular savings, you need a reliable and trustworthy savings partner to grow your money.

Raisin is a digital platform that gives you access to various savings products with the comfort of a single account. All of the savings options on our platform are provided by federally regulated banks and credit unions.

Let us help you unlock greater earning potential with some of the highest interest rates in the market.

Get started with Raisin today!

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.