You work hard for your money, right? So when you find yourself with more of it than you need for bills, you should aim to put that extra cash to work. Here are three great options to consider this August.
1. A savings account
The nice thing about a savings account is that you can access your money at any time. And your deposit is protected provided it’s in a FDIC-insured bank and doesn’t exceed $250,000.
There were many times in the past when savings account rates were incredibly stingy, so much so that the amount of interest you’d earn was negligible. But that’s not the case right now.
These days, plenty of savings accounts have APYs in the 4.00% range. And if yours doesn’t, shop around for a bank that’s paying more generously — and focus on online banks. Online banks don’t have the same overhead expenses as physical banks, so they often offer much better rates.
2. A CD
The Federal Reserve made the decision during its late July meeting to hold interest rates steady. This means that today’s fantastic CD rates are likely to stick around a while longer.
If you like the idea of getting 5% back on your money, you may want to open a CD before rate cuts start happening. That could happen as soon as mid-September, which is when the Fed is next scheduled to meet.
That said, before you put all of your money into a single CD, consider a ladder. This has you opening several CDs with staggered maturity dates so your money frees up at various intervals. A CD ladder could spare you from getting stuck with an early CD withdrawal penalty if you need some of your money unexpectedly.
3. A brokerage account
The fact that some CDs are paying 5.00% today is pretty impressive. But what’s more impressive is the stock market’s historical return. Over the past 50 years, the stock market has returned about 10% annually. And that makes a brokerage account a good place to put money you’re willing to invest.
However, the stock market can be very volatile, so it’s generally best to stay away from stocks if you expect to need your money within the next five to seven years. But if you’re willing and able to invest for seven years or longer, then it pays to put some money into the stock market now, sit back, and let your balance grow.
All of these options are a great place to put your money this August. They don’t need to be mutually exclusive. You could put a few hundred dollars into a savings account, open a $500 CD, and put $500 additional dollars into an investment portfolio.
Spreading your money out offers you a chance to enjoy the flexibility of a savings account, the guaranteed risk-free return of a CD, and the potentially strong returns a brokerage account might deliver over the long term.
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