The Short and Long of It
December 17, 2020
By: Chris O'Shea, Author, SavvyMoney
Where to stash savings according to time length
How — and where — you save your money can depend on the goals attached to those funds. Are you saving for something two years down the road or 20? Here’s a breakdown of where to stash cash, sorted by time frame.
Short Term Savings
Short term savings are accounts that can take only a few years to pad and are for goals that are within a few years in the future. Examples include a vacation fund, an emergency savings account or a down-payment on a new car.
- A high-rate savings account. Search for a high-yield savings account. A good place to start is a credit union or local community bank, both of which typically offer better rates than big banks. A high interest rate savings account also gives you quick access to the cash if you need it.
- A money market account. As Marketwatch notes, a MMA usually offers higher than average savings rates, but the minimum deposit and balance guidelines can also be quite high.
Medium Term Savings
Medium term savings are accounts that can take two or more years to pad, they are for goals that are more than a couple of years in the future. Examples include a down-payment on a house or a wedding fund.
- A high-rate savings account. Again, for a medium-term goal, a high interest rate savings account is a good place to stash cash.
- Certificate of Deposit. A CD is a good place to save for a medium-term goal that has a specific date attached to it (like a wedding). If you know you’ll want/need the cash in two-to-five years, try a CD, which can offer above average savings rates. Again, start with checking rates at your local financial institution.
Long Term Savings
Long term savings are accounts that can take 10 or more years to pad and are for goals that are at least that far away. Examples include a college fund or retirement savings.
- A tax-advantaged retirement account like a 401(k) or IRA. If saving for retirement, max out your 401(k) and/or IRA. Both offer good returns, as long as you hold onto them for many years.
- A tax-advantaged account tied to another goal like a 529 college savings account or Health Savings Account (HSA). If tax-advantages are on the table, you want to grab them.
- A discretionary brokerage account. If you can keep your eye on the big picture, stash cash in the stock market and enjoy healthy returns over the long haul.
Posted December 17, 2020 by Chris O'Shea
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