Where to Stash your Cash?
Keeping your savings in your checking account seems like the convenient thing to do, it is usually not a good idea because you'll likely be tempted to spend your money prematurely. So where can you put it?
Here are some recommendations for keeping your stash safe, (and in a box under your bed is not one of them.)
Savings Account
You deposit your cash and make withdrawals at any time without paying a penalty. (However, you are restricted in the number of withdrawals you can make.) Savings accounts are insured by the NCUA (for credit unions), so you won't lose your money (limits apply) even if your financial institution goes out of business. In exchange for total liquidity and stability, savings accounts usually provide an investment return.
Money Market Deposit Account
Money market deposit accounts are similar to savings accounts, but the interest rate is variable, not fixed, and usually higher as well. They are insured and may come with limited check-writing privileges.
Money Market Mutual Fund
Money market mutual funds are mutual funds that invest in short-term debt obligations, such as Treasury bills and CDs. While generally safe, money market mutual funds are not insured and provide no guarantee against loss.
Share Certificate of Deposit (CD)
CDs are insured and typically offer a higher interest rate than savings accounts or money market deposit accounts. The catch – if you withdraw money from the Share Certificate of Deposit before it matures, you usually have to pay an early withdrawal penalty. This can be problematic for an emergency fund because you don’t know when you will need the money. Still, it may be a good choice if the additional interest you earn compared to other options is greater than the penalty.
Whether you decide to go with only one of the above options or diversify, a savings account is a safety net that everybody should have. Saving three to six months of living expenses may seem like a daunting task, but by setting aside just a little every month, you can get there in less time than you might think.