3 Smartest Places to Invest Your Money in May 2024
In 2023, Americans will have an average of about $6,138 saved, according to New York Life. If you have extra money this year, you might be wondering where to invest it to keep it safe and help it grow. And in that respect, you have a choice. Today we’re featuring three of the best homes your money can find.
1. Savings account
If you want to have extra money for emergency expenses or save money for short-term goals, choose a savings account. But it’s especially a good idea to put money in a savings account right now.
The Federal Reserve has spent much of 2022 and 2023 raising interest rates in an effort to slow the pace of inflation. And now banks are paying handsomely as a result.
These days, you can earn more than 4% interest on a savings account. This is especially true if you choose an online bank over a brick-and-mortar bank. And the best part? There are no promises. You can withdraw your money whenever you want. But you can earn more while your cash is in the bank.
2. A CD
It’s true that savings accounts pay handsomely these days and don’t require a commitment. If you use a CD do You have to put in more effort because it ties up your money for a predetermined period of time. And if you withdraw money before the CD’s maturity date, you risk being assessed a penalty. The amount of the penalty depends on the bank and how long the CD is valid.
Still, the advantage of going the CD route is that CD interest rates are high, as are current savings account rates. A savings account might provide 4% of your money, while a CD might provide about 5%. And unlike savings accounts, where interest rates can fluctuate, with CDs you’re promised a specific interest rate for the duration of your subscription.
In fact, you may want to open longer-term CDs now, such as those with a 48- or 60-month term. If you go that route, you may not get as high an interest rate as a short-term CD (e.g., a CD with 12 months or less).
But keep in mind that the CD rates we see today may not apply after 2024. This is because interest rates are expected to fall in the not-too-distant future. So if you’re saving for a long-term goal, a 48- or 60-month CD may be a good place to save money.
3. IRA
If you’re saving for a somewhat distant goal, a long-term CD could help you now. However, although today’s CD rates are quite impressive, they still pale in comparison to the 10% average annual return of the stock market over the past 50 years. If you want to allocate money for a distant goal like retirement, an IRA is a good option. This is because you can invest in stocks through this account.
Let’s say you have $6,000 to spend in the future. If you pay a 4% CD interest rate over the next 25 years (unlikely because interest rates don’t stay very high), your $10,000 would be worth about $16,000. If your stock portfolio were paying 10%, it would be worth about $65,000.
Additionally, the great thing about a traditional IRA is that it shields a portion of your income from taxes. If you put money aside in a CD or savings account, the interest you earn there will add to your tax burden. Therefore, it may be a good idea to offset this by contributing some funds to an IRA.
Obviously, you have options if you want to put your money to good use. Evaluate these three carefully to see which one best suits your goals.
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