If you’re sitting on some cash, you must put it somewhere where you can (a) protect it and (b) earn a little interest. In today’s inflationary environment, this is the only way to keep your money safe and avoid eroding its spending power. The question is, where are the best places to store your cash for maximum protection and benefit?
Savings Accounts
A savings account is often the first place to consider parking your cash. Offered by banks and credit unions, these accounts are very safe because they are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000. This means even if the bank fails, your money up to that limit is safe.
Savings accounts are perfect for emergency funds or money you might need soon because you can quickly access your cash. While the interest rates on these accounts are not very high, they do offer some returns, which can help keep up with inflation over time. Plus, many banks now offer online access, making transferring money and paying bills easy.
Money Market Accounts
Money market accounts (MMAs) are similar to savings accounts but usually offer higher interest rates in exchange for higher balance requirements. Like savings accounts, they are also FDIC-insured, making them a safe option for your cash.
MMAs often come with check-writing privileges or a debit card, which adds a layer of convenience if you need to access your funds quickly. They’re a good choice if you have more money to deposit and won’t need frequent withdrawals.
High-Yield Checking Accounts
For those who need easy access to their cash but want to earn more than a typical checking account would offer, high-yield checking accounts are an excellent option. These accounts often offer interest rates comparable to or even higher than those of savings accounts, but they require you to meet certain criteria like making a minimum number of debit card transactions each month or signing up for direct deposit.
High-yield checking accounts combine the benefits of earning interest with the flexibility of checking access. This makes them perfect for your operational cash—money you use regularly but also want to keep growing.
Single-Family Real Estate
If you have a large chunk of cash that you aren’t looking to tap into anytime soon but that you want to put to work earning you interest and tax benefits try investing in a rental property.
While a rental property definitely requires a bit more time than any of the other options highlighted in this article, you can always hire a property manager to oversee the investment for you.
The beauty of parking cash in a rental property is that you get steady cash flow, property value appreciation, and tax benefits (including depreciation).
Certificates of Deposit (CDs)
If you can afford to set aside money for a fixed period, certificates of deposit (CDs) might be a suitable option for you. CDs typically offer higher interest rates than savings or money market accounts in exchange for locking in your money for a period ranging from a few months to several years.
The longer the term of the CD, the higher the interest rate you’ll usually get. CDs are also FDIC-insured, making them a very safe investment. However, you should be sure you won’t need the money during the term since early withdrawal penalties can apply.
Treasury Bills and Bonds
U.S. Treasury bills and bonds are worth considering for those looking for a safe and slightly more profitable way to park larger sums of cash. These short-term securities issued by the U.S. government are among the safest investments since the government’s full faith and credit back them.
Treasury bills (T-bills) have terms ranging from a few days to one year and are sold at a discount to their face value – you buy them at a lower price than what they’ll be worth at maturity. On the other hand, bonds pay interest at regular intervals and return the principal when they mature. These can be bought through a broker or directly from the government at TreasuryDirect.gov.
Find the Right Mix for Your Portfolio
When parking cash, it’s important that you determine what your goals and time horizon are. Are you looking to park cash for the short term for six months until you’re ready to buy a house? Or are you looking to park cash for the next ten years as you approach your retirement date? There’s a difference, and you need to account for the specific circumstances you’re facing.
The right mixture of savings and investment vehicles is important. You need to take this seriously and not just rush into putting your cash somewhere. There’s power in diversification. This means diversifying both in types of accounts and in interest earned and risk taken.
When you intentionally approach your “cash parking” strategy, you can rest easier at night knowing your finances are in a healthy place. It all comes down to doing your due diligence and being patient with the process.
