3 strategies for getting more mileage out of your savings
Saving up money for a rainy day can be difficult, especially if it doesn't seem like you're earning very much interest from your bank account. Fortunately, there are several different savings vehicles to choose from. So if you've got a pile of money sitting in a plain old vanilla savings account, there are some alternatives that could yield a better return.
Find out now: Which checking account is best for me?
1. Open a Money Market Account
Money market accounts differ from savings accounts in a couple ways. For one, you can write checks with this type of account, which can come in handy if you're saving for something big like a new car. Instead of having to transfer money over to your checking account or pay for a cashier's check, you can write checks directly from your money market account.
The other advantage of having a money market account is that they generally earn more interest than savings accounts.
2. Buy a CD
If you're saving money for a purchase you plan to make later down the road, a certificate of deposit could be worth considering. When you purchase a CD, you agree to leave the money alone for a set period of time that can range from three months to five years. As long as you hold the CD, it accrues interest until it matures. At that point, you can cash it out or roll it into a new CD.
CD rates tend to be higher than the ones attached to money market accounts and the longer the term, the more you stand to earn.
Laddering your CDs could be an easy way to boost your savings even further. This involves buying multiple CDs with different terms and rolling them over into new CDs as they mature. It's important to keep in mind, however, that if you cash a CD out before the term ends, you may have to forfeit some of the interest you've earned as a penalty.
Related Article: What Kind of Savings Account Do You Need?
3. Open an Investment Account
Once you've completed your emergency fund and you've maxed out your retirement accounts, setting up a separate investment account might be a good next step. Sites like E*Trade and Scottrade make it easy to purchase individual stocks, mutual funds, exchange-traded funds or bonds from the comfort of your home.
There are a few drawbacks to keep in mind if you're going the investing route, starting with the increased risk. While you stand to earn more on your investments than you would with a savings account, you're also subject to the whims of the market so losing money is a real possibility.
The other thing you need to watch out for are the different fees that go along with investing through a brokerage firm, including the broker's commission and the annual service fees. If you're paying out a significant portion of your earnings to maintain your investments, you're really not seeing much growth.
Check out our investment calculator.
Making the most of your savings all comes down to where you decide to keep your money. While you might have no problem stuffing it under your mattress, you've got a better shot at seeing it grow if you put it in a savings vehicle.
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