Clark says your concern is totally understandable, but part of becoming an investor is being willing to assume a risk: "The very nature of investing is that you can lose some, much or all of the money you put in."
Resource: The Best Online Banks
Why You Need a Short-Term Money Reserve
If you’ve thought about investing in the stock market recently, you may have been put off by the wide fluctuations you’ve seen since the onset of the coronavirus pandemic.
"Having money available that is in a parking space, as I call it, is really important because the money that is for shorter term needs — emergencies and things like that — you can't invest it," Clark says.
"The purpose of short-term savings is that the money is completely safe, and that's why you do it. You're not going to earn much on it, but you're not going to risk anything."
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Online Banks
- Free checking
- Low or no fees
- Unlimited ATM reimbursements
- Easy-to-use interfaces online and via apps
Because there's such a wide variety of choices today, shop around for online banks to find one that caters to your specific needs.
“Online savings accounts, even at today’s low rates, still remain a good place to park your money that you’re not investing for the long term,” Clark says.
High-Yield Savings Accounts
A savings account can be a great option if you're interested in parking your funds for a while.
Different types of savings accounts can be found at different types of banks, so you need to do your homework. There are also big differences in the interest rates you can earn depending on the type of savings account you open.
Unlike standard savings accounts, high-yield savings accounts have variable rates and bigger returns. You'll also need to pay attention to any adjustments made by the Federal Reserve and how it affects your money.
Resource: The Best High-Yield Savings Accounts
Credit Unions
Resource: How Credit Unions Work
CDs
Resource: What Is a CD and Should You Open One?
Final Thoughts
Clark says although these are difficult financial times for many people, having a stash of cash can help you be prepared.
“Savings accounts and CDs are part of standard family finances,” Clark says. That’s especially the case when the unexpected happens and you need a money source to draw on.
If you have enough assets that you can afford to invest, Clark recommends using a discount brokerage like Fidelity Investments or Schwab rather than a bank or credit union. Discount brokerages offer cash management accounts to their investment customers. You can park your short-term funds there, as cash management accounts offer the convenience of a checking account but pay at least a small amount of interest.
More Savings Resources From Clark.com:
- How to Switch Banks in 4 Simple Steps
- Credit Union vs. Bank: What's the Difference?
- Here Are the Best Free Checking Accounts
[ This article was originally published on Clark.com ]
The post Where To Put Your Money for the Short Term appeared first on Clark Howard.