Whether you’re saving up for a special purchase, starting an emergency fund or just building your wealth, there are many options of where you can keep your money.
When deciding where to keep your money, there are a couple of factors to take into consideration.
- How soon will you need to use the money?
- Will you need immediate access to your money? Like with an emergency fund, you’ll want to be able to get to it right away. But for long-term goals and retirement, it’s not necessary to have immediate access.
- Do you want to put your money to work? Or are you okay with not earning interest or returns?
Places to keep your money
At home
Some people feel safer and more comfortable keeping their cash at home. Access to the cash would be immediate and could be beneficial in case of an emergency. The downside of course is theft and things like a fire or other disaster, that could destroy your money in seconds. You also won’t be earning any interest since it’s just sitting in your house.
Local Bank Account
Another place to keep your money is in your local bank, either in a checking or savings account. Your money will be close and you should be able to access at least a small amount at any time using your ATM card if an emergency arises.
The downside would be that most (if not all) local banks offer really lame interest rates on checking and savings accounts. Since many checking accounts don’t offer interest, be sure to check with your bank before opting out of a savings account.
Online Bank Account
The largest advantage for keeping your money in an online bank account is that the interest rates are usually higher than those of your local bank. They might not be as extravagant as they were a few years ago, but they still outshine most local banks.
The downside for keeping your money in an online bank account is that it can take a few days for a transfer to your local bank account if you need larger amounts. Still you should be able to pull out a fair amount using the ATM card provided by your online bank.
CDs and Fixed Rate Bonds
These would be best for longer term savings goals and a safer way to build wealth. Most usually offer equivalent interest to online savings accounts and sometimes even better.
The downside is that you are locking your money up for a set amount of time, so this is usually best if you already have an emergency fund in place. Taking your money out sooner usually forfeits all interest earned and sometimes you’ll even face an additional penalty.
Although, if you don’t need your money anytime soon, you might want to look into fixed rate bonds and CDs to compare the interest you could be earning.
Where do you prefer to keep your money?
Correct answer – all of the above. Plus several more.
It’s not an either-or-question. You don’t need 12 months of Emergency Funds in cash at home for an ‘Emergency’ an at home Emergency situation is that you run out of hard liquor and its only 10pm on weeknight. That’s not a $10,000 problem.
Right now, I’ve found the best and most flexible interest rate deal is an online savings account with Barclays US at 1.00%. No fees and I think you get a max of 6 withdrawls per month. You can link it up with your existing checking account at another bank and just transfer money back and forth if needed. Thing I like most is that your money is not locked in and the rate is competitive with most CDs. I would NOT do any CDs right now, interest far too low to be locked in. 1% isn’t much, but better than 0 for a savings account!
For money I’m going to need in the short term I have both an online bank account and an account with a local bank. The online bank earns me a higher interest rate but I keep the b&m bank as a companion just in case of emergency, or if I have cash to deposit which I can’t do into the online account.
The First Million is the Hardest recently posted..March 2013 Portfolio Review
None of these are very good options these days. Safety should be the first consideration and then access if you do not have a good reserve. After that on line money market accounts and maybe laddering CDs of different durations may make sense. But with puny interest rates it would seem to make sense to stay short. Some predict interest rates rising to 2 or so percent by next year.
We still really don’t have much in the way of savings. As such, we opt for having our money easily accessible in case of emergency. While I’m putting the money I’m saving towards taxes in an online savings account, the rest of our money is in brick-and-mortar banks.
Edward Antrobus recently posted..Net Worth Update: March 2013
I’m on the lookout for a good online savings account – better rates I hope, and every little bit counts! The other options you note can work as well.
Digital Personal Finance recently posted..Different Approaches to Personal Budgeting