You’ve finally got money left over after paying the bills. Now where do you put it? For an emergency fund or a goal coming up soon, I’d start with a federally insured savings account you can access easily. A high-yield savings account is a good place to look. If you know exactly when you’ll need the money, a CD may make sense. Start with what the money is for and when you need it.
Regular savings accounts
A regular savings account at your bank or credit union can be a simple place to keep a small cash cushion. If it’s at the same institution as your checking account, transfers may be quick. Compare the rate and fees. A monthly fee can eat up the interest you earn, especially when you’re just getting started.
High-yield savings accounts
A high-yield savings account, or HYSA, works much like regular savings and generally pays a higher rate. The rate can change. Compare the annual percentage yield (APY), fees, and minimum balance requirements. If the account is at a different bank, check how long a transfer to checking takes before relying on it in an emergency.
Money market deposit accounts
A money market deposit account can also earn interest and may offer checks or a debit card. Compare its APY and minimum balance against a HYSA, and check any withdrawal limits. The word “deposit” matters here. A money market mutual fund is an investment and carries different risks and protections.
Certificates of deposit
A certificate of deposit, or CD, usually locks in a rate for a set term. Most CDs charge a penalty if you withdraw early. If you have $3,000 for a planned purchase next year, you could compare a CD that matures before the bill is due with an easy-access savings account. I’d keep emergency money where I can get to it without paying a penalty.
Check the insurance and do the math
Verify that the bank is FDIC-insured or the credit union is federally insured by the NCUA. Standard coverage is generally up to $250,000 per depositor or member, per insured institution, per ownership category. Your balances in the same category at the same institution generally count together.
Suppose you keep $5,000 in savings for a year. At 1% APY, you’d earn about $50. At 4% APY, you’d earn about $200. That’s a $150 difference before taxes, assuming the rates stay the same, you leave the money alone, and there are no fees. Use that math to decide whether opening a new account is worth the effort.
When it makes sense to invest
For long-term retirement money, diversified growth-stock mutual funds are an option I’d consider. For a car, a down payment, or a big vacation, I’d only consider stock funds when the goal is more than five years away and I can delay it if the market drops. Five years is a starting point for thinking about the timeline. Stock funds can still lose value when you need the money.
If the date is firm or the goal is essential, keep the amount you’ll need in insured savings. If you invest for a flexible goal, plan how you’ll shift money back to savings as the date gets closer. Your emergency fund stays available throughout.
Give your savings a job today
Pick one goal and write down the amount and the date. If you need $2,400 in 12 months, start with $200 a month and let the interest give you a little breathing room. Then compare two accounts on APY, fees, and how quickly you can get your money.
Try the Savings Goals calculator
Read next: How to Make a Budget When You Live Paycheck to Paycheck
