Here are some of the worst places you can put your cash savings and why you should avoid them.
A checking account is a transactional account where most people receive their direct deposit paycheck, pay bills, and use for day-to-day spending. Checking accounts are great because you can process as many transactions as you need and most don’t charge a monthly fee. However, they typically pay little, if any, interest.
Your cash shouldn’t sit idle earning no interest at all. If it is, you could actually be losing money thanks to inflation. At the current inflation rate, you are losing 1.74% per year if your savings are sitting in a no-interest checking account.
- Easy access to funds
- Unlimited transactions
- No monthly fee
- Little or no interest
- Tempting to spend
- Could lose value to inflation
Basic savings account
At most big brick-and-mortar banks, a basic savings account is free and works as a nice companion to a checking account. However, these big banks are looking to earn a profit and likely not paying you enough interest to make that type of account worthwhile.
Even more, Federal Reserve Bank Regulation D requires that banks limit you to six withdrawals per month. For most savings accounts, you won’t need more than six withdrawals per month. But with the measly 0.11% national average interest rate, you only need to make one withdrawal to get your money out of that account, which is losing value thanks to inflation.
- Quick transfers to checking at same bank
- Can accept split direct deposit for faster savings
- No monthly fee
- Earns interest
- Low interest rate at most banks
- Limited to six monthly withdrawals
- Could lose value to inflation
The stock market is great for long-term investing, but your savings are too important to risk losing value. While the stock market typically earns more than inflation, it comes with plenty of risk, particularly when investing in individual stocks.
While your savings could grow to double or triple with stock investments, it could just as easily lose value.
The stock market is a great option for things like retirement savings because you have decades until you need those funds. However, in the short-term you never know what will happen, making it a big risk for more immediate money needs.
- Big potential growth
- Options to invest in index funds for instant diversification
- High risk
- Takes several days to access funds
- Can lose value
Under the mattress
It should go without saying that you shouldn’t keep your money under your mattress — but it turns out lots of people do just that. In fact, a survey last year showed that over half of millennials are hiding cash outside of a bank account. It’s fine to keep a little cash in a secret hiding place, but keeping your savings there is a big no-no.
Cash is not FDIC insured, and can be easily lost or stolen with no possible recourse. As many Americans learned during the Great Recession, banks can go out of business, but your money is safe up to $250,000 thanks to the Federal Deposit Insurance Corporation.
- Quick access to cash
- Can be easily lost in a fire or flood
- Can be stolen with no recourse
- Not insured in any way (typically excluded from renter and homeowner policies)
- Does not earn interest
- Loses value to inflation
Where to put savings
Now that you know where to avoid putting your savings, let’s take a look at some better options to store your cash savings with the most liquid needs.
Online savings account
While similar in many ways to the basic checking accounts discussed above, there is one important difference found in an online savings account: the interest rate.
Brick-and-mortar banks operate expensive buildings and have to pay more employees to keep the business running. Online banks, however, have very little overhead. Thanks to the lower cost, online-only banks tend to offer much higher savings account interest rates than traditional banks.
Most online banks pay around 1% interest, which is about ten times the national average. I use an online savings account to store my home down payment fund and emergency fund.
- Better interest rate than traditional banks
- Stable, FDIC-insured account
- Can accept split direct deposit for faster savings
- Most offer free online transfers to accounts at other banks
- May still lose value to inflation, but will do so more slowly
- No bank branch for withdrawals or customer service
Certificate of deposit
If you’re putting cash into savings that you know you won’t need for a while, a certificate of deposit (CD) can be a good option. A CD is a type of savings account where you earn a higher interest rate than a standard savings account, but in return, your funds are locked away for a period of time.
For example, one-year CD rates can top 2.00%, as of April 3, 2018, which is about one-third of a percent better than most online savings accounts. If you do need to access your funds before the period is up, you can typically do so by paying an interest penalty.
- Better interest rates than most savings accounts
- FDIC insured
- Interest penalty to access funds early
- Interest rates are still not great
Bond fund investments
While stock market investments are high risk and volatile, there are other investment options to consider for your savings. Remember: Your emergency fund should be easily accessible, and risking your home down payment is a bad idea. For other types of savings, however, an investment account could be the best option.
Investment accounts are not just for stocks — you can also buy a variety of funds and other investments. For example, a TIPS (Treasury Inflation Protected Securities) bond ETF allows your cash to grow with little risk and is adjusted to not lose value to inflation. Other bond funds include riskier corporate bonds, but are still considered very low risk.
- Returns that can beat inflation
- Low risk
- While government bonds are stable, funds can lose value as interest rates change
- Less liquidity
When considering where to put savings, your options are seemingly endless. But with a little research, you can maximize your returns and make sure your money keeps working for you — even after you’ve stowed it away for a rainy day.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.47% – 6.97%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.47% – 6.71%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|