3 Smartest Places to Save Once You Have an Emergency Fund

When you start saving money, building an emergency fund is usually the best thing to do first. Setting aside three to six months of living expenses can save you from even the most serious financial disasters. This money must be accessible so that you can access it at any time. Ideally, you should keep it in a high-yield savings account so you can withdraw it when you need it.

But what about? ~ after Have you saved up an emergency fund? So where should your money be? Actually, there is no right answer to this question. Because it depends on your financial goals. But a high-yield savings account, certificate of deposit, or brokerage account can all work.

Here’s what you need to know to help you decide which account is right for you.

1. High Yield Savings Account

Your emergency fund isn’t the only money that belongs in a high-yield savings account. If you have money saved for other purchases but you don’t know when you might need the cash, these funds may be also Belongs to this type of account.

High-yield savings accounts pay competitive interest rates (accounts listed offer up to 5.32% APY as of mid-February 2024). If you choose an FDIC or NCUA backed institution, your money is safe because it is insured up to $250,000. And you don’t have to worry about your money being tied up because you can access it whenever you need or want it. (However, some savings accounts place a monthly limit on the number of withdrawals.)

There are many things you need money to save and have access to at any time – money for home repairs, money for car repairs, money for a vacation if you don’t know exactly when to book a trip. . All of this money should be in a high-yield savings account so you can access it when you need it.

2. A CD

Certificates of deposit are another great place to save once you’ve established an emergency fund. CDs offer two big advantages over high-yield savings accounts. First, the interest rates offered are typically slightly higher for CDs than for savings accounts. Second, the interest rate is guaranteed for the CD period, not a variable interest rate like a deposit. So even if interest rates fall, you will still retain the high interest rate that was in effect when you purchased the CD.

But there is a downside. You have to tie up your money. You must remain invested for the life of your CD, which is typically between three months and five years. And if you attempt to withdraw money early, you will be assessed a financial penalty called an early withdrawal penalty.

So CDs can be a great place to save if you’re confident you won’t need the money for a while. For example, if you’re saving to buy a house in three years or getting married in six months, a three-year or six-month CD might be a good place for that cash.

3. Brokerage account

Lastly, if you’re saving for a long-term goal, you should consider putting that money into a brokerage account. Brokerage accounts allow you to invest your money and earn much higher returns. For example, the S&P 500 has averaged annual returns of about 10% over the long term.

Now the biggest downside is that you can lose money. This is especially true if your investment timeline is short and you buy right before the crash and cannot afford to wait for a market downturn. So you’ll only want to put money into an investment account if you definitely won’t need it for a few years. For example, if you’re saving to buy a second home 10 years from now or for retirement, this may be a good place to save.

Each of these accounts can be a good place to draw on additional funds after you fully fund your emergency account. Be sure to consider your savings goals to find the account that works best for your schedule.

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