Where To Put Your Money for the Short Term

We’re in the middle of an “ultra-low savings environment,” money expert Clark Howard says. That means that because of the current economic situation, the returns people are getting on their savings are not as good as in years past.

So where should you put your money right now? This article will go over several strategies you can use to invest your money in the short term.

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.

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."

If you can’t commit to investing a certain amount of your funds for at least seven years — in other words, if you’re going to need to use the funds before then — it may be best to consider that money as “short term.”

"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."

Here are some safe options to consider as “parking spaces” for your short-term savings.

Online Banks

The popularity of online banks has taken off in recent years. Not only are they convenient, but many online banks offer suites of products and services that are hard to beat including:

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.

Resource: The Best Online Banks

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

Clark is a big fan of credit unions because they typically offer better rates than traditional banks — but that’s not all.

Another major advantage of credit unions is that they usually have more personalized customer service and charge lower fees.

If you don’t have much money to put aside, don’t worry: You can still find a credit union that meets your needs. Just shop around for one that doesn’t require a high minimum balance or initial deposit.

Resource: How Credit Unions Work

CDs

A CD (certificate of deposit) account is another attractive option right now because it guarantees a favorable interest rate if you agree to leave your money there for a specified period.

Before you choose to open a CD account, make sure you don’t need the funds for a while. If you withdraw before the CD matures, you’ll have to pay a penalty, which could be 90 days of interest or more.

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.