Maybe you’ve saved up a nice chunk of change but are unsure where to put it. You want it to be secure and easily accessible in case you need it. Plus, it’d be nice if it grew a bit too while it sat there. Sometimes finding the right place to keep your funds can be a challenge. In this blog post, we’ll discuss three possible options for parking your short-term cash, especially during a period of high inflation.
#1: High-Yield Savings Accounts
High-yield savings accounts can offer a safe and easily accessible option for individuals who need someplace to put their short-term cash. These accounts, available at banks and online financial institutions, generally provide higher interest rates compared to traditional savings accounts. They’re also federally insured up to $250,000 per depositor by the Federal Deposit Insurance Corporation (FDIC). With their low-risk nature and easy access to funds, high-yield savings accounts can be an excellent solution for keeping your cash liquid while still earning a relatively competitive return. They are ideal for emergency funds, short-term savings goals, or as a temporary parking spot for your cash while you explore other investment opportunities.
#2: Money Market Accounts
Money market accounts (MMAs) strike a nice balance between liquidity, safety, and potential returns. Similar to high-yield savings accounts, MMAs usually offer competitive interest rates and easy access to one’s funds. In this scenario, your funds will likely be invested in short-term, low-risk instruments such as Treasury bills and certificates of deposit, which can provide a reliable and convenient option for parking short-term cash. Like high-yield savings accounts, MMAs are also covered by the FDIC. Plus, with check-writing privileges and debit card options, they generally offer additional flexibility for one’s daily financial transactions. So whether you have slightly longer-term cash needs or prefer the convenience of check-writing, money market accounts can be an excellent choice.
#3: Short-Term Bond Funds*
If you are willing to consider investments with slightly more risk, short-term bond funds may be an attractive option. These funds typically invest in a diversified portfolio of fixed-income securities with shorter maturities, aiming to provide steady income while limiting interest rate risk. While they carry more risk compared to savings accounts or money market accounts (note that they aren’t FDIC insured, for example), short-term bond funds can offer the potential for higher yields. They can be suitable for individuals who have a slightly longer investment horizon, a moderate level of risk tolerance, and who are seeking to maximize returns on their short-term cash while maintaining a degree of liquidity.
Finding the best place to put your short-term cash requires careful consideration of your financial goals, risk tolerance, and liquidity needs. High-yield savings accounts can provide safety and accessibility, making them a potentially reliable option. Money market accounts, on the other hand, offer a balance between safety and potential returns, with the added convenience of check-writing privileges. Short-term bond funds, while carrying more risk, provide the potential for higher yields and can be suitable for individuals with a moderate level of risk tolerance.
Assess your financial goals, consider your risk tolerance, and consult with a trusted financial advisor to determine the best option for parking your short-term cash. By making informed decisions, you can help ensure the security of your funds while potentially maximizing returns in accordance with your specific financial needs.
Disclosures: The content of this article is for educational and informational purposes only. Not all products or services mentioned are offered through Lincoln Financial Advisors. All investing is subject to risk, including the possible loss of the money you invest. The Federal Deposit Insurance Corporation (FDIC) is a U.S. government agency that insures cash deposits at FDIC member banks, generally up to $250,000 per account. For more information, visit www.fdic.gov.
*An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.