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If you’ve recently come into a substantial sum of money—perhaps through an inheritance, a work bonus, or you’re nearing retirement—finding a safe place to stash your cash is crucial. While it’s important for your money to work for you, sometimes the primary focus should be on protecting it from potential losses. In this guide, we’ll explore various options to keep your money safe and growing, including savings accounts, CD accounts, and U.S. government-backed bonds, bills, and notes.
Savings accounts are an excellent place to start because your deposits are typically guaranteed by deposit insurance up to $250,000. This insurance is provided by the Federal Deposit Insurance Corp. (FDIC) for bank accounts or the National Credit Union Administration (NCUA) for credit union accounts. However, not all financial institutions provide deposit insurance, so it’s essential to verify how your money would be protected before opening an account.
Generally, the safest places to save money include a savings account, certificate of deposit (CD), or government securities like treasury bonds and bills. Understanding your savings and investment options can help you decide the best place to park your savings.
A savings account is typically a deposit account held at a financial institution, such as a bank or credit union, that accrues interest and is protected by federal insurance. You can usually open a traditional savings account with a low initial deposit and withdraw your money at any time (sometimes up to a certain number of withdrawals per month).
Savings accounts keep your savings separate from your everyday spending cash, making them a solid option for your emergency fund or short-term savings goals like a wedding, vacation, or home renovation.
These standard savings accounts are offered by brick-and-mortar banks or credit unions. They typically pay lower interest rates, sometimes as low as 0.01%.
HYSAs offer significantly higher interest rates than traditional savings accounts, so your money can grow faster. These accounts are often available at online banks, which can afford to offer higher rates because they have lower overhead costs than traditional brick-and-mortar banks. However, high-yield savings accounts may have more restrictions, such as higher minimum balance requirements or transaction limits.
Your savings account is likely your best option to keep your money safe for the following reasons:
A traditional CD account is another low-risk financial product banks and credit unions offer that pays you a fixed interest rate for a specific term, such as six months, five years, or even longer. In exchange for committing to keep your money in your account, the bank typically pays a higher interest rate than a standard savings account. When your term ends, or “matures,” you’ll receive your initial deposit plus the earned interest. However, if you withdraw funds before the account’s maturity date, you’ll typically incur penalties.
Aside from a traditional certificate of deposit account, there are several types of CDs you can choose from, such as the following:
If you’re concerned about missing out on higher earnings if interest rates rise during your CD term, consider a bump-up CD. As its name implies, this type of CD allows you to “bump up” your rate if a higher one is available during your term. Generally, you can only increase the interest rate once per term.
Also known as no-penalty CDs, these CDs allow you to make early withdrawals from your account without paying a penalty. No-penalty CD rates vary, but you may find rates around 4% or higher with a term of one year or longer.
A jumbo CD may help you earn higher interest rates while protecting your principal amount if you have a substantial sum you wish to keep safe. This type of CD requires a higher minimum deposit, usually $100,000 or more. Like all CD types, the account comes with deposit insurance that covers savings up to $250,000 per institution and per account holder. That means any savings above that amount won’t be fully insured.
The United States government offers three classes of fixed-income securities to investors: Treasury bonds (T-bonds), Treasury bills (T-bills), and Treasury notes (T-notes). These investments are attractive to investors looking for safety because the U.S. government backs them.
Here’s how these securities work in a nutshell: When you buy a Treasury bond, bill, or note, you’re essentially loaning the government money. In exchange, you’ll earn interest on your deposit, usually at a higher rate than a savings account, but it could vary based on the term of the security. You can purchase these investments in increments of $100. And while you could pay federal, state, and local taxes on interest earned in savings accounts and CDs, you’re only responsible for paying federal taxes on interest earned from your Treasury bonds, bills, and notes.
T-bonds are the longest-term government debt security, with maturity periods of 20 or 30 years, although you can sell a bond before it matures. These bonds pay interest every six months at a fixed rate. As such, T-bonds provide a solid mix of liquidity and stability, with rates that exceed those from a standard savings account.
T-bills are short-term investments ranging from as few as four weeks up to one year. You’ll earn more by investing in longer-term T-bills. Treasury bills differ from bonds and notes because they don’t come with a fixed interest rate. Instead, you buy T-bills at a discount rate and take earnings when you receive the face value of the bill once it matures.
If you’re looking for the advantages of a government-backed security but don’t want the 20- or 30-year obligation of a Treasury bond, you may prefer the flexibility of U.S. Treasury notes. These notes offer short- and intermediate-term maturities of two, three, five, seven, and 10 years. Like T-bonds, Treasury notes pay interest on a semiannual basis.
You can purchase Treasury bonds, bills, and notes through the TreasuryDirect portal, or alternatively, you can buy or sell these securities through your bank or brokerage.
Keeping your money safe begins with choosing the safest vehicles to park your money, but don’t forget to protect your accounts from scams, identity theft, and other forms of fraud.
Choosing a safe place to save money can help you protect your savings so it will be there when you need it. As part of your efforts to strengthen your financial well-being, don’t forget about your credit. Regularly review your credit report and credit score with Experian to see where you stand. Free credit monitoring can also alert you to potential identity fraud sooner.
For any mortgage service needs, O1ne Mortgage is here to help. Call us at 213-732-3074 to speak with one of our expert loan salespersons. We are committed to providing you with the best service and ensuring your financial security.