Embrace Your Low-Risk Options
When it comes to short term savings, you’re going to want to stash them somewhere that’s low risk and easily accessible—a big tax headache or added fees when you’re in the process of buying a home (or boat) is the last thing you want.
That said, Michael Ciccone, a New Jersey-based Certified Financial Planner, says the first question to ask yourself is “if, in the hopes of better returns, [you] are willing to take any chance of ending up with less money than [you] started with.”
If you’re not, then you’re going to want to stick to those low-risk, guaranteed returns options.
Justin Sullivan, a certified financial planner and Investment Market Director, Southeast, at PNC Wealth Management, suggests a money market account. “With the Federal Reserve steadily raising interest rates, savers are being rewarded with higher yields on their money market accounts compared to previous years,” he says.
Money market accounts (which are different from money market funds) can be accessed daily, are fairly safe investments and you can find one that’s FDIC-insured.
If you have a more specific time frame in mind (like you know you’ll want the money in five years), Sullivan says “high quality bonds” are also an option. You can select a bond that matures in the amount of time you have to invest. “Using government or municipal bonds can be even more beneficial as they can provide tax-free interest as you save for your big purchase,” he says.
There are also high yield savings accounts (you can find one with slightly higher rates than the money market accounts), CDs, and other short-term fixed income instruments, which will also benefit from the Fed raising rates.