Sick and tired of the recent market volatility and watching your portfolio value swing? Today I decided to cover 8 places to park your cash during these volatile markets. If you are not invested already you are probably wondering where to put all that hard earned cash for a while until things calm down. Just remember that the best short-term investments have to meet YOUR needs.
Cash Parking Considerations
Just like any other investment you make, where you decide to stash some money shouldn't be blindly decided. Make sure that you consider the following:
- How often will you need access to the money?
- What kind of interest are you earning on your money (or do you need to make)?
- Are there any "other" benefits to choosing a particular institution? Rewards, gifts, etc.
- What are the penalties for taking out your money ahead of schedule?
Hopefully I highlighted at least one thing that make you second-guess where you are currently parking cash. If so, this post has already served it's purpose! But if you are looking for more suggestions check out the following list.
1. Money Market Account
For the liquidity and return, money market accounts really can't be beat. Most give you easy access through checks, transfers, and even ATMs debit cards. This market is typically very competitive but what I have is a Money Market account with my broker TDAmeritrade so I can quickly transfer money back and forth - pennies add up people!
2. High Yield Checking Account
Checking accounts should really be used for monthly transactions, short-term investing. But, some banks these days are offering a combined checking and money market option that does pay a nice little interest rate. The higher your average balance the more you will make in this area.
3. Money Market Deposit Fund
These funds invest in highly liquid and still very safe. The difference between a money market "fund" is that the fund will invest in securities such as certificates of deposit, government bonds, and commercial investment paper. The interest rates and returns on money market funds are typically higher than the average money market accounts. Keep in mind they aren't FDIC insured.
4. "I" Bonds (inflation-protected)
The inflation protected US bonds are indexed savings vehicles. The bond's payment is adjusted semiannually to keep up with inflation and protect the purchasing power of your money. Denominations range from $50-$10,000 so they are even great for some smaller accounts, but you have to hold them for at least 12 months to avoid the penalty.
5. Certificates of Deposit (CDs)
We all have heard about these before. Some banks offer no-penalty withdrawal while other banks lure you in with higher interest rates in you promise to keep the money tied up longer. Depending on how long the CD's maturity is, it may pay more than money markets but you sacrifice liquidity in the process. I've never been sold on these.
6. US Treasury Bills (NOT Notes!)
"Treasuries" as you commonly hear in the news and media are debt instruments backed by the full faith and credit of the U.S. government. T-BILLS mature in less than a year; T-NOTES mature between 2 and 10 years. If you are parking cash sort term stick to the T-Bills. Another perk is that they are exempt from state and local taxes!
7. High Yield Savings Account
These high yield savings are very similar to the checking accounts from above. However, savings accounts typically have restrictions on how many transactions and transfers you can have per month before they hit you will additional fees. The small pennies you earn in savings accounts isn't enough to even keep up with inflation and could earn more money elsewhere. I don't even have a savings account anymore.
8. Under the Mattress (the LAST resort)
As a very last resort you can always just keep the money in the mattress. It sure is liquid but I actually think you'll earn a negative interest rate given the effects of inflation on our US dollar. But hey, whatever helps you sleep better at night right?