Where is the best place to stash your savings? Under your mattress? Savings bonds? Your checking account? Savings account? Certificate of Deposit? With so many choices, it's easy to just take the easiest route, but that can end up costing you money.
It also doesn't help that recent interest rate cuts are making it more difficult to find good rates of return on your money. Nevertheless, this isn't a time to abandon your emergency fund just because the rates are low. Your goal should be to maximize returns while maintaining the liquidity you need.
There are five common places that people use to manage their short-term savings:
- Checking Accounts
- Savings Accounts
- Money Markets
- Certificates of Deposit
- Savings Bonds
Learn more about where you should keep your savings, and check out the primer on U.S. savings bonds to help you make the most of your cash.
One of our CDs just came due and my husband checked out options. Here they are:
1. Roll this over to another nine-month CD at 1.4% interest. (We were getting 4.1%.)
2. Put this in a 90-day money market account at 0.65% interest.
3. Put it in a savings account at .15% interest, not a typo!!!
This is RIDICULOUS!!!!!
Laura, I know how you feel. There aren’t many good rates out there to be sure. But the good news is that economists say we’re running at zero to possibly negative inflation right now, so those small interest rates aren’t so bad in theory.
Back when you could get 3% on a savings account, that was probably all eaten away by close to 3% inflation.
I know it doesn’t make your account balance feel any better earning just a few basis points, but in the grand scheme of things, hopefully it isn’t as bad as the raw numbers suggest.
Thanks, Jeremy – Oh, and I forgot to mention that the regular savings rate is actually .05%, for accounts under $10,000.
So, this is “good news”? Really? I thought “negative inflation” was a fancy way of saying “depression”.
It is to be hoped that this situation isn’t going to last for nine more months, so we’re going with the 90-day money market account, I think. If we really have zero inflation/deflation for 9 months, we are in VERY serious trouble indeed, isn’t that correct? As I with my non-economic brain understand it?
Sorry, Laura. I didn’t mean to imply that deflation was good, but simply that the good news about low interest rates is that inflation is also low, so the net gain is probably about the same.
i.e. 3.5% interest on savings when inflation is running at 3% nets the same as 0.5% interest earned when inflation is at zero (in economic theory, but not always in practice).
But you’re absolutely right, and prolonged deflation is bad news. We would like to get back to a point where we’re seeing inflation run at a percentage or two on the positive side. This would hopefully point to a better money supply situation, which would in turn help drive interest rates back up a little.