Investing your savings
But you can still do most if not all of the important banking duties: Deposit checks by scanning them with your phone, move money back and forth between accounts, and speak with a customer service rep by phone or live chat. A money market account functions like a savings account, but generally has higher interest rates, higher deposit requirements, and comes with checks and a debit card.
Federal regulations restrict the number of transfers or withdrawals you can make in both accounts per month. Cons: Not liquid, may have minimum deposit requirement. You can find CDs with terms ranging from three months to six years. In general, the longer the term, the higher the interest rate. You expect more return in exchange for your money being less accessible. Being stuck in a low-rate vehicle while interest rates are climbing is kind of like eating a salad during a pizza party: sad.
That way, if interest rates are higher after a year, you can pull funds out of that one-year CD and move it to something with a better rate, capturing a higher return for at least a portion of your savings. A bump-up CD allows you to request an interest rate increase if rates go up during the CD term. You can generally request this increase only once and there may be downsides. For example, these CDs may have a lower-than-average initial interest rate and higher minimum deposit requirements.
A step-up CD is like an automated bump-up CD. But the initial interest rate is likely to be low. Pros: Liquid. Cons: Some risk; funds charge expense ratios. Bonds are loans you make to a company or government, and the return is the interest you collect on that loan. Investment-grade is a quality rating for municipal and corporate bonds that indicates a low risk of default; U.
You can sell a bond fund at any time, but if you are selling to get out as interest rates are rising, you could face a higher loss with long-term bonds than short-term. Through an online brokerage account, you can buy a low-cost index fund or exchange-traded fund that holds corporate bonds, municipal bonds, U.
This will diversify your investment, as the fund will hold a large number — often thousands — of bonds. Most stock brokers offer a fund screener that will allow you to sort funds by performance, expense ratio and more. Pros: Interest rate, low or no minimum investment requirement.
Saving for the life you want Once you have an emergency fund with three to six months' worth of expenses and your debt repayment is under control, you're in a good financial situation to do a lot more with your money. Before deciding how much to save and what accounts to use, you should first decide what exactly you want in life, says McLay. Every milestone, dream or ambition comes with a cost that you can prepare for. Are you going to get married?
Do you want to buy a home in five or 10 years? Do you want a tattoo? Each one of your goals will have a different timeline and require you to think differently about how you're saving and investing the money. And for goals taking place more than two years from now, consider investing with a brokerage account. It comes with more risk, but since you won't need the money right away, McLay argues that it's worth taking a chance.
Where to put your savings There are many kinds of savings and investment funds. In general, lower-risk funds yield predictable but smaller growth. Higher-risk funds offer the potential for rapid growth, but you could also lose money as the market goes up and down.
A high-yield savings account is the least risky, because your money isn't invested in the stock market, but it still yields 16x more interest than the national average. When you're ready to grow your money more aggressively, find a brokerage firm or robo-advisor that works for your lifestyle and personality. A simple app like Acorns links to your checking account and automatically invests spare change.
Robo-advisors like Betterment and Wealthfront let you select the length of time for your savings goals and how much risk you want to take on, then you can set up an amount to invest every month. They are usually cheaper with fees of about. Other platforms like Ellevest charge membership fees instead of charging a percentage of your earnings.
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Advertisement When looking at the reasons now whether you should top up your superannuation, the inability to access your superannuation because of preservation rules should not be a concern. Super will be completely accessible Based on current rules, if you are over 65 then your superannuation will always be completely accessible whether you continue to work or whether you are retired. The biggest question will come down to tax. In other words: are you better off from a tax perspective to invest these additional cash savings in a superannuation environment or in your personal name?
When looking at the superannuation environment the key tax arbitrage will be whether you can convert these personal contributions to a pension. If you can, then there is no better tax outcome as the taxable income will be taxed at zero and all withdrawals after age 60 are tax-free.
However, if the contribution is forced to stay in the accumulation account, given you have already maxed your transfer balance cap, then you may well be better off investing these additional savings in your personal name.
Advertisement In a superannuation environment, taxable income relating to your accumulation balance will be taxed at 15 per cent from the first dollar. Investing personally or in super? Advertisement If you can add this amount to your superannuation as a personal contribution this will obviously not be possible in a single lump sum and will take a number of years given the annual contribution caps. There are other important factors to consider such as Centrelink and the investment mixture you are looking to deploy with these additional savings.
Investment-grade is a quality rating for municipal and corporate bonds that indicates a low risk of default; U. You can sell a bond fund at any time, but if you are selling to get out as interest rates are rising, you could face a higher loss with long-term bonds than short-term. Through an online brokerage account, you can buy a low-cost index fund or exchange-traded fund that holds corporate bonds, municipal bonds, U. This will diversify your investment, as the fund will hold a large number — often thousands — of bonds.
Most stock brokers offer a fund screener that will allow you to sort funds by performance, expense ratio and more. Pros: Interest rate, low or no minimum investment requirement. Cons: Highest risk, low liquidity. Peer-to-peer loans are just what they sound like: You loan money to other people in exchange for interest. There are online platforms specifically for this purpose: Prosper is one of the biggest, and it connects investors to borrowers all over the country.
These borrowers are typically assigned a grade based on their creditworthiness, allowing you a little control over how much risk you take. You can choose to lend money only to borrowers in the highest credit tiers, though even those loans are not risk-free.
To be clear, this is the highest risk option of these intermediate-term investments. Just like in a standard lending environment, the interest rates charged to low-credit borrowers are higher, meaning the more risk you take, the higher your potential return. To minimize risk further, you should diversify your investment in these loans as you would diversify any other investment.
When you do this, you band together with other investors to make up the total of the loan. You should consider P2P loans mostly illiquid for the length of the loan. Investments for a long-term at least 10 years or flexible-deadline goal First, a word here about account choice: The vast majority of long-term goals are retirement-related, which means you should be investing in a tax-advantaged account.
One major difference, aside from the tax treatment: You can put as much in a brokerage account as you want, and pull money out at any time. Pros: Long-term growth, diversification. Cons: Higher risk, minimum investment requirements, fund fees. And even if your deadline for using the money is flexible, you need to come to terms with the fact that you're taking on more risk and might lose money. For long-range goals, it makes sense to put at least a portion of your savings toward equities stocks , because you have the kind of time horizon that can weather market ups and downs.
This is a departure from an actively managed mutual fund, which employs a professional who tries to beat the market and, in reality, rarely does.
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