If you have some extra money, you probably feel pretty good about yourself. Instead of deciding what to refinance or consolidate, you’ve got excess cash to use for various purposes, including saving it for a rainy day.
It’s probably not the best idea to stash that money under your mattress or bury it under the toolshed. We’ve got some better ideas for where you can put it until a time when you need it.
1. Certificate of Deposit
You may have heard the term certificate of deposit before, normally abbreviated as CD. A CD is a monetary tool offered by banks. With a CD, you lock up a set amount of money for a designated length of time.
The appeal with CDs is that you usually get a better interest rate, or return on your money than you’ll get with a savings account. Also, there’s no risk. You have no chance of the money you’re putting away losing value, which can happen if you put it in the stock market or somewhere equally as volatile.
If you put your money in a CD, though, understand that you’re not supposed to touch it before the maturity date. That could be in six months, a year, two years, or some other length of time.
If you remove that money from the CD, you’ll have to pay the penalty for doing so. So if you put money in a CD, try to ensure you won’t need that cash until the maturity date.
2. High-Yield Savings Accounts
Putting your extra money in a high-yield savings account will ensure your money is 100% safe. You get zero volatility, and you also have liquidity. You’re getting a better interest rate than with a standard savings account, and you can remove some of that money any time you need it.
If you want to put some money in a high-yield savings account, shop around for the best rate. You can always go with a local bank or a larger, national one. You might also want to consider an online bank like Ally. They have no brick-and-mortar locations, but they make up for that by offering some of the best interest rates on high-yield savings accounts.
CDs and high-yield savings accounts come with no risk, but your money won’t generate the profit it could if you put it into riskier investment vehicles. If you don’t mind gambling with your excess cash, you could put it in the stock market instead.
If you don’t want to pick an individual stock, you might put your money into the S&P 500. That’s an index of 500 of the most prominent companies traded on the New York Stock Exchange.
Essentially, if you put money in the S&P 500, you’re betting that the stock market, on the whole, will do well. Historically, betting on the stock market to thrive pays off. However, a time might come when you need to withdraw that money, and that time might come when the market is down.
If that happens, you’ll either need to withdraw your money at a loss, or else you’ll have to wait until the market climbs so you can break even or make a profit.
You Have Several Options
You have many choices for stowing your excess money. If you’re risk-averse, you can put some money into a CD. You’ll get a guaranteed return rate, so long as you leave the money in there for the designated period of time.
You can also put the money in a high-yield savings account. You’ll get more interest than with a traditional savings account, and your cash is liquid, so you can withdraw it whenever you like.
If you don’t mind taking a risk, you can invest in the S&P 500. If the stock market does well, your money will increase. However, if you try to withdraw at a low point, you’ll lose part of your investment.