Okay, now that you’ve completed the trek through your personal finance wilderness and have gathered information about your assets, how do you feel? Maybe you feel relieved…you have more than you thought. Maybe you feel like you’ll never be able to retire? Maybe you feel empowered to take some more steps in the right direction? I personally vote for steps in the right direction!This month, I wanted to touch base with you on the Cash and Cash Equivalents section of your balance sheet. My very first article was about ways to save called Step 1: Learning to Save. I reviewed unique ways to actually set aside some money. Take the plunge and do it!
Once we do start saving, most of us out there just have our money sitting in savings accounts or checking accounts with our local (or not so local) banks. I just googled my personal bank and the savings interest rates in a traditional savings account range from .1% to .4%. Yes, the period comes before the number! And they describe it as a “competitive dividend rate”. Yikes! Basically, my money is doing absolutely nothing for me in that account! So, I went online to open an Online Savings Account.
Online Savings Account
Online savings accounts are, well… online. There’s something to be said about not having to maintain multiple national branches and staff at each one. With no physical location for their bank, online savings vehicles are able to maintain their presence at a fraction of the cost, therefore offering higher interest rates for their customers!
There are a lot of online savings to choose from and each offers their own versions of convenience, customer service, interest rates, account minimums, sign up bonuses, etc. Some are offering as high as 2.25% APY (stands for annual percentage yield). That’s literally 22X higher than what I get at my bank!
These types of accounts are generally easy to open and you just link them to your current checking account to establish a link between the two and transfer the funds! Watch the dough start rolling in!
Now, I have to be careful about what I recommend in these blog posts, which is why you never see me use names of financial institutions, BUT I can send you to a website that I personally LOVE that can help with your choices! Have you ever used NerdWallet? I start so much of my financial research here because they keep up with the times and break things down simply. Here is the link to their 10 Best High-Yield Online Savings Accounts of 2019.Take a look and get one open!
Certificates of Deposit (CDs)
I’m sorry, I HAD to use a picture of a CD to start our discussion on CDs! It was too good of a nerdy opportunity to pass up. CDs are another type of federally insured savings that have a fixed interest rate for a certain number of months or years, and a fixed withdrawal date. One of the main differences between these and online savings accounts is that you’re locking your money into this savings vehicle for a certain amount of time ,if you withdraw it early, there will likely be a penalty for taking the funds too soon.
Now, there are a TON of different kinds of CDs and different ways to set them up to work for you. I’m barely going to scratch the service in this blog because I don’t want to bore you! If you want to learn more about them, feel free to email me!
Let’s talk about the shortest-term CD out there as an example. You can invest your money in a CD for as little as 3 months. Remember, it’s locked in for this time frame, so if you invest in a CD you want to make sure you won’t need that money for anything in the near future. According to Bankrate, the average APY of the top five 3-month CDs is 2.27% with minimum investments ranging from $500 to $25,000. Now, if you’re like me (and you already researched online savings a bit) you’ll wonder why you would lock your money into a CD when online savings accounts are paying nearly the same, and sometimes more, but over lower investment minimums and more flexibility to withdraw funds!
That example was to show you a quick way to compare what the best investment vehicle might be for you. Bankrate also shows that the average of the top 5 five-year CD rates is 3.39%. Is it worth it to lock up your money for five years to earn 3.39%? That is totally up to you!! Every person has a unique situation and needs or wants different things! I’m providing the tools for you to learn more about your choices! If you’d like to talk more about what options might be best for you, just reach out and ask some questions!
Now, this month is the dreaded tax season for me, so wish me luck! I’ll see you in April for more of a discussion on Retirement savings, as well as a bonus blog about the most common effects I saw from the tax law changes for people this year and how to work with it and plan for it next year!