Saving money is central to nearly any plan for achieving personal financial health. But while planning to save is almost always a good idea, all savings plans are not created equal. Plinking coins into a piggy bank probably isn’t the optimal approach for a variety of reasons, including the fact that it earns no interest. The actual best places to put your money vary depending on your savings goals and time line, among other factors such as safety and liquidity. However, a solid list of candidates for almost any saver will likely include high-yield savings accounts, certificates of deposit, money market funds, Treasury bills and Series I savings bonds.
Ask a financial advisor for detailed saving guidance.
Saving and Interest Basics
The best place to save your money won’t necessarily be the best place for someone else to save and earn interest. This choice is dictated by the specifics of an individual saver’s situation. Selecting based solely on the highest advertised interest rate is not the wisest approach in most circumstances.
For instance, one of the first things to consider when selecting the best place to save your money is your reason for saving. If you’re building an emergency fund, easy access to your funds is likely more important than high interest. A goal to save for a down payment on a home, on the other hand, suggests going for more interest at the cost of locking up your money for a time.
Generally speaking, the key factors deciding the best place to save money and earn interest for you include:
- Liquidity. How quickly and easily can you get your cash when you need it? Some assets, such as real estate, are highly illiquid, meaning converting them to cash takes much time and effort and will also cost something.
- Risk. What are the chances you might earn less than the projected rate of interest? The stock market is an example of an investment option that is too risky for many savings goals because equities fluctuate in value significantly. If the market is down when you need cash, you might have to sell equity holdings at a loss.
- Time frame. What is your investment horizon? The longer the time you can let your money earn interest, the higher the interest rate you can get.
- Interest rate. Often expressed as the annual percentage yield (APY), the interest rate determines how much money your savings will earn.
Best Places to Save and Earn
After considering your special situation and the above factors, you can likely find the best place to save and earn interest among these options:
- Savings account. Bank and credit union savings accounts are insured against loss and you can get your money quickly when you need it. The best savings accounts offer high APYs, low fees and 24-hour access.
- Certificates of Deposit (CD). A bank or credit union CD can pay a significantly higher rate than a savings account but you’ll usually give up access to your funds for one to 60 months. The best CDs pay market-leading rates and have modest minimums.
- Money Market Accounts: These accounts from banks, credit unions and other financial institutions often pay higher rates than savings accounts and also have easier access, including check-writing features.
- Treasury Bills. T-Bills are debt instruments issued by the U.S. government and represent the ultimate in safety. They have lower interest rates than some savings options, but are highly liquid. You can buy them online at Treasury Direct.
- Series I savings bonds. I-Bonds are U.S. government securities with a fixed interest rate equal to the rate of inflation at time of purchase. I-Bonds offer limited liquidity but high safety, especially against loss of purchasing power due to inflation, and are available through Treasury Direct.
The Bottom Line
The best place for you to save money and earn interest depends on your savings goal, investment horizon, risk tolerance and other factors. For many savers, the wisest choice will be among savings accounts, certificates of deposit, money market accounts, Treasury Bills and I-Bonds. These options offer a variety of emphases on the key concerns of interest rate, fees safety, and liquidity. While none of them is perfect for everyone, each has something to offer the saver in search of the ideal place to save and earn.
- Before deciding where to put your savings, talk it over with a financial advisor. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- In order to make smart decisions about where to save, you need to know how long it will take to reach your savings goal. SmartAsset’s investment calculator is a free, online tool that will instantly tell you what your investment should be worth at a specific point in the future after taking into consideration your starting amount, size and frequency of additionally contributions, forecast earning rate and time horizon.
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