Have you ever heard the expression, cash is king? One too many times I’m guessing. Well, cash is the king that rules the world today – with regard to finance of course. So where are the best places to save money or park cash? Whether you have a small savings reserve or money set aside for an important purchase or repairs; or even if you just received a big windfall and are undecided. If you’re looking for tips and ideas about what to do, here is some perspective.
Here are some of the best places to park your money until you need it for an objective. The tips and recommendations are numerous, but the final decision rests on you.
Reasons for Parking Money: Best places to save money
Here, we can discuss the various reasons or needs that necessitate the holding of cash positions. One idea should not be seen as superior to the other. It all depends on the objectives of the owner of cash with regard to their current circumstances.
Safety and Due Diligence
The first concern should be how safe is that holding account? The next question to ask is, have I done my due diligence? If you’re considering keeping a lump sum of money in a savings or checking account, you must ensure that the account is FDIC or SIPC insured. These bank accounts and investments accounts are the best places to save money if you want safety.
Short-term best places to save money
Orient yourself with both the benefits and the drawbacks of a short-term holding period for your cash. You will receive interest payments on your money, but not the kind that will cushion you from the effects of inflation.
Long-term best places to save money
The longer you hold your money in an interest bearing account, the more interest payments you will receive. While stating the obvious, you stand the chance to negotiate for better terms regarding the yield than short-term savers. A long-term savings strategy would be to create an emergency fund of at least 6 months of living expenditure.
To Wait for Opportunities
Another incredible advantage that savers have is that they can take advantage of buying opportunities that may arise either in equity markets, or even bargain shopping if that was the primary objective. With patience, you could find the best places to save money and get a bigger bang for your buck.
Postponing an Essential Purchase
Just like the previous objective stated above, your hard earned cash could just be socked away safely for that important purchase or expense. When you postpone a purchase until the availability of discounts; for example, buying clothes & accessories that are out of season, buying a car with cash instead of credit.
Read Next: Is It OK to Keep Money in Savings Account?
Best Places to Save Money for Growth
There are several great ideas and options available to save your money. The list below has the potential to both protect your principal, and also give you some relief from the economic wears and tears of inflation. However, you’re advised to consult a certified professional for further clarifications.
Cash Equivalents:
These are as liquid as can be. They can be accessed with ease without any withdrawal penalties. Nearly all savings accounts fall into this category. High yield savings accounts that are usually operated over the internet are also a good fit.
Money Market Instruments:
A money market instrument is an investment that gives the saver a better yield for their money than the conventional savings account. It can provide good liquidity for short notice withdrawals, and a good down-side protection against a total loss of the investment. These investments include Money Market Deposit Accounts (MMDAs), Time deposits like certificates of deposit (CDs), and Treasury Bills, among others. They are available in all countries (especially stable world economies that have a central bank and regulators).
Medium-Term Window:
The previous examples would constitute short-term holding periods for your money. However, your savings could gather more yield momentum when you hold it beyond the short-term. Some of these best places to save money for higher returns include, Corporate and Municipal Bonds, Mutual Funds, Money Market Based ETFs.
Long-Term Window:
If you’re in it for the long haul, you might want to dive into equities but with caution. We’ll discuss three main grades of equities with varying degrees of risk. But without question, they produce better results in yield over a longer period of time – in both dividends and capital gains.
- Index Funds & ETFs
- Individual Stocks
- Stock Options
See my step-by-step detailed article of investing in stocks for beginners here.
Terrible Places to Park Cash
If there are good places to park money, there will certainly be bad ones too. On the other hand, there are people who still believe that those methods are the best places to save money, or park cash – because there are some documented evidence of profit. However, they fall under our “terrible places” list because of two main factors:
- There is neither a downside protection nor shield for the principal.
- Profits or yields are not guaranteed.
These include:
1) Putting money under your mattress
2) Buying lottery tickets with your savings
3) Gambling at a casino
4) Crypto currency trading
5) Forex Trading
Things to Consider Before Finding the Best Places to Save Money
While we examined both the good and bad places for parking money, we can arrive at a set of factors that could help us decide wisely.
Long-Term Investing
If you have cash allocated for savings, and wouldn’t need it until 24 months or beyond, you could consider investing it long-term. You should be looking for the best places to save money that come with a durable protection for your cash against inflation. You stand to achieve investment returns that are correlated to the levels of risk you are able to stomach within that period of time.
Building an Emergency Fund
If you do not already have one in place, an emergency fund could hold between 6 to 12 month worth of living expenses. This would bring a cash flow relief if you ever experience any personal financial setback, such as a loss in primary income.
Investing in Yourself
The best investments are those that cost little to implement, but end up paying returns forever. Investing in yourself is crucial to attaining financial freedom and is a great use for your cash. You can fund your personal growth through higher learning, books, online courses, hiring mentors and coaches.
Personal Debt Levels
Credit card debts, student loans, car loans, and others have a nasty way of enslaving people to pay high interest payments. If they have money they want to park, they could consider earning interest on that lump sum also. Paying back your debt and earning passive income on savings is a plural approach to your journey of becoming truly free financially.
The Bottom Line
If you were clueless about where the best places to save money were, now you are spoiled for choice. All the examples listed are just a guide. Different people may have different needs or be in different circumstances. You can decide what is best for you. A savings account is the simplest and most basic option. Use this as your default holding bay while you perform the due diligence to find a good spot for your hard earned cash reserves.
Please share in the comments below other areas not discussed within this post, and I will include them in the next update.
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