This question was submitted by a reader! Do you have a money question you’d like Gen Y Planning to answer in a future blog post? Submit it to genyplanning.com/askgyp.
Where should I keep my savings? There’s plenty of advice out there for retirement savings but very little about other savings. What should I do with my savings after I have a good amount set aside for a safety net (for example, if I’m saving for a house or a renovation or an around-the-world trip in four years)?
Remember when you could get 5% APY in an online savings account? Ok, some of you are too young to remember that.
While you can’t get interest rates like that anymore, you have a few options when it comes to short- and medium-term savings. The key is to earn as much interest as you can while keeping your money more liquid than it would be in, say, a retirement account with early withdrawal penalties.
For any expenses coming up within the next five years, or emergency savings you may need to tap into at a moment’s notice, an online savings account will often offer you a higher interest rate than a brick-and-mortar bank. You can check rates on Bankrate.
You can even open multiple savings accounts through the same bank and earmark them towards different goals (travel, home renovation, wedding, etc.) and automatically transfer sums of money into each of those accounts each month to make saving easy!
Many online banks also offer competitive rates on CDs, where you park your cash for a predetermined amount of time and then don’t withdraw it until the CD matures. If you know you can wait 1-3 years to tap into some of your money, a CD could be a good place to stash some of it. I really like “No Penalty CDs” that some online banks are starting to offer.
CNote is a really interesting option, too. The money in your account is lent to community impact projects, so you can do some good with your dollars. You’ll also earn 2.5% interest! One thing to keep in mind is that you can only withdraw your money once per quarter, so this isn’t a good place to park emergency savings, or any money you’ll need to access more frequently.
If you have any mid-range goals (5-10 years away), you can begin to invest in a discount brokerage like Vanguard, Betterment, or Ellevest. These all offer investment options for shorter time horizons. When you sell shares of funds, ETFs, or stocks in the future, you will need to pay capital gains tax, which for most people is 15% of the gains.
