In previous posts, we discussed investing your long-term savings in mutual funds; so now let’s turn to your low risk, near-term savings. For these savings, safety is more important than income. Where to save money safely? These should be in savings accounts, certificates of deposit (CDs), or money market funds. Theses may not yield much, but have very low risk. Remember low risks mean low returns while high returns mean higher risks. See more about risks vs rewards.
Don’t mix your checking account funds with your savings funds, even to maintain a required minimum balance. It’s just too easy or tempting to dip in your savings when they are not clearly separated. Furthermore, you may wish to have a separate savings account for each of your savings goals such as emergency funds separate from your savings fund for vacation, wedding, auto, or house down payment. You may even want a separate account for your big annual expenses like insurance, property taxes, or membership dues so you are not scrambling when they come due. It’s simple to add up your annual expenses, divide by 12, and automatically send that amount to a separate savings account just for annual expenses. None of these options pays substantial interest, almost always less than the rate of inflation, but with your savings, security is the primary goal. Most of these options are insured by the Federal government up to $250,000. Your college and retirement savings are altogether different and we will discuss those in the future.