There are plenty of places you can save your money…banks, credit unions, online savings accounts, certificates of deposit (CDs), a piggy bank, under your mattress, buried in a jar in your backyard, or even in your stinky sock drawer (no wonder your money smells funny).
But when you are trying to figure out where to save money, there are a couple of factors to consider…
- How quickly will you need that money?
- Where can you get the best interest rate?
The first step is to determine how soon you’ll need that money. Another term you may have heard for this is how liquid your money needs to be, meaning how easily you can access it. You can determine how liquid your money should be based on what you’re saving it for.
If you’re saving for something specific and you know it will take you 6 months to save for it, then your money doesn’t have to be extremely liquid because you know you won’t need it for at least 6 months. But if you’re saving for an emergency fund, then you probably need it to be pretty liquid because an emergency could strike at any time and there’s really no telling how soon you’ll need it.
So based on liquidity (that’s a fancy word) and interest rate, let me rank 5 different places you could save your money. I’ll rank each one on a 1-5 scale for interest rate (1 being a horrible interest rate, 5 being the best interest rate) and for speed of access (1 being it’s going to take you some time to get your money, 5 being you could have your money at a moment’s notice).
- Bank (Interest Rate – 1 / Access – 4) – Banks make it easy to access your money but have horrible interest rates.
- Credit Union (Interest Rate – 2 / Access – 4) – A credit union is just like a bank, so it’s pretty easy to get your money, and it typically pays a better interest rate than banks.
- Online Savings Account (Interest Rate – 3 / Access – 3) – Online savings accounts almost always have better interest rates than banks and credit unions, but it may take a few days to actually get your money because they have no physical locations. You have to transfer money from your online savings account to your actual bank where you can withdraw the money.
- Certificate of Deposit (CD) (Interest Rate – 3 / Access – 2) – CDs really don’t pay that great of an interest rate and you have to lock your money in for a specific time. If you withdraw money early before your timeframe is up, you have to pay fees.
- Piggy Bank (Interest Rate – 0 / Access – 5) – Obviously with a piggy bank, you’ll have your money right there anytime but you’re not making a dime in interest.
YOUR 2 CENTS: Any other places you’d recommend for saving money?
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