Rates on high-yield savings accounts and certificates of deposit are pretty good right now. This comes as no surprise to many personal finance experts, who say the time is ticking to take advantage of higher interest rates on savings deposits.
Choosing the best savings account is about more than just getting more returns on your money, but it’s crucial. Experts recommend choosing an account based on your goals, risk tolerance, time frame and other factors.
This got me wondering: Where do personal finance experts keep their own savings? I rounded up a few of CNET Money’s Financial Review Board experts to find out.
Rita Soledad Fernandez Paulino
Founder Wealth for All
Rita-Soledad Fernandez Paulino, who uses the name “Soledad”, has savings in three different accounts. She keeps her short-term savings in a high-yield savings account and a six-month CD, and her long-term savings in I bonds, which are all interest-bearing accounts.
I bonds are low-risk bonds issued by the U.S. Treasury with a fixed interest rate that help protect against inflation. You can convert bonds into cash after 12 months, but you’ll miss out on interest if you withdraw before five years. Therefore, they are better suited for long-term goals when you want a solid return, minus the volatility of stocks. Soledad has a $10,000 I bond in her name and another $10,000 in her husband’s name secured at 4.30%. This money, plus the increased interest, will eventually go towards a down payment on a house.
Soledad added a six-month CD that offered a guaranteed rate of return to her savings strategy, hoping she could make that down payment when the CD matured. The six-month CD is one of the shortest CD terms offered by banks and credit unions. You’ll earn interest at a fixed rate for six months, but you’ll pay a penalty if you withdraw the money before the term ends.
As for the third option? “I keep what I have saved in a high-yield savings account for things I will need in the future,” Soledad said. High-yield savings accounts earn better returns than traditional savings accounts; This makes them a solid option for an emergency fund, mutual fund, or other savings goal that requires accessibility.
Soledad said she was trying to maximize the money she earned in her sleep. “I love earning cash from credit card rewards, interest from high-yield savings accounts, and dividends from investments in the stock market,” she said. It’s the difference between keeping your money in a piggy bank and keeping it in an interest-bearing savings account. Although the money in the piggy bank is easily accessible, it loses value due to inflation and you don’t earn any interest while you sleep, she added.
Founder Crush Your Money Goals
Bernadette Joy’s savings are spread across four accounts: a high-yield savings account, 12-month CDs, Treasury bills and a money market fund; All of these have annual returns between 4% and 5%.
Like Soledad, Joy keeps her emergency fund in a high-yield savings account, along with funds she needs for her business. “High interest rates help you make some money risk-free,” Joy said.
The money needed for the down payment on the house is kept in two separate 12-month CDs in two different banks. This is a strategic move on his part. This means each account is insured for a maximum of $250,000 by the Federal Deposit Insurance Corporation.
Joy keeps the rest of her savings in a Treasury bond and money market fund. “I chose these two tools because right now I am focusing on preservation rather than accumulation,” he said. He added that as he approaches retirement, his goal is to develop a tax-advantaged withdrawal strategy.
Treasury bills are short-term U.S. government debt securities with maturities ranging from four weeks to one year. Unlike Treasury bills and bonds, Treasury bills do not pay a fixed interest rate but are assigned a value that can be redeemed if held to maturity. Joy, earnings from Treasury bills exempt from state and local taxes.
Not to be confused with a money market account, a money market fund is an investment fund that invests in short-term liabilities such as government bonds, treasury bills, and cash. Money market funds are considered low-risk investments, but they are not insured by the FDIC.
“I teach my students not to think so far ahead and make no moves that they fall into analysis paralysis, and these options are safe bets for beginners,” Joy said.
Founder Smart Girl Finance
Bola Sokunbi splits her short-term savings (any money goal with a timeline of less than five years) between a high-yield savings account and a 24-month CD.
“My emergency fund and sinking funds are in high-yield savings because I need to be able to access all of my funds quickly if needed,” Sokunbi said. He put the rest into long-term CDs to take advantage of higher interest rates. He noted that the money in his 24-month CD is not tied to a specific goal.
Certificates of deposit account tend to have higher interest rates than many high-yield savings accounts, but there is often an early withdrawal penalty if you try to withdraw your money before the maturity date. Some people create CD ladders to split the money into several CDs with different terms, which allows for more flexibility.
Sokubni did not opt for the CD ladder because he prefers not to structure a lot of money that way. Instead, he looks at where interest rates are when a CD term ends and then decides whether to open another CD.
According to Sokunbi, both of these savings options are on the more conservative end of the savings spectrum. “HYSAs provide quick access to your money when you need it, but if the interest rate you earn is lower than the inflation rate, they are more prone to losing value due to inflation,” he said.
When interest rates inevitably begin to fall, Sokunbi plans to continue his strategy. “I have a certain percentage of liquid funds for my short-term and long-term investment goals to avoid emergencies and inflation, growth and appreciation,” he added.
Weigh your priorities before making a decision
Deciding on the best place for your savings depends on your financial goals and comfort level. High-yield savings accounts, CDs, Treasury bills, and bonds offer varying degrees of financial return and security, but you need to determine your risk tolerance and savings timeline before getting started.
Whether you follow the advice of an expert or try several options at once, do your research and consider other factors besides interest rate in your savings journey. Maximizing the growth of your money is important, but you should also weigh maintenance fees, minimum deposit requirements, transfer limits, and branch and online access.