Lately, we’ve been talking a lot about prioritizing your savings; article after article, we’ve discussed that knowing how to save your money is the key to generating wealth and securing your financial future.
But there’s more to saving your money than meets the eye.
You can do it the old-fashioned way—putting some money aside every few paychecks without giving much thought to where you store it.
Or you can do it the efficient way. Follow a precise plan that encourages you to consistently deposit money into an account that grows your savings.
To make things easy for you, we’ve compiled a list of our favorite interest-accruing savings vehicles.
5 Ways to Save With Minimal Risks
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Each type of savings product works differently. And depending on your short or long term needs, you might find that one or a combination of these accounts could best help you reach your savings goals.
1. Money Market
If a savings and a checking account had a baby, it would be a money market account. Online and traditional banks and credit unions offer these accounts if you’re interested in earning a higher-than-average interest rate that isn’t fixed (rises and fall with inflation, etc.) while still having easy access to your money.
Like most accounts, the higher your balance, the more interest you’ll earn. And depending on your bank, money market account minimums, fees, and interest rates will vary.
The high liquidity and low risk these accounts offer, make them a safe investment vehicle for those looking to store a considerable sum of money, such as an emergency fund.
2. Certificate of Deposit (CD) Savings Account
This is the savings vehicle most of us know of; it’s a safe place to keep your money for a predetermined amount of time while it slowly gains interest.
The interest rates on a CD account are fixed and not much higher than a savings account. But they are an insured, non-volatile place to keep your money if you don’t want to spend it.
You will be subject to fees and penalties if you decide to withdraw earlier than predetermined. Every financial institution offers various CD options; it’s important to shop around and find what’s best for your needs.
3. Treasury Bonds
The federal government offers fixed income debt securities in the form of Treasury bonds.
Basically, you’re lending the government money (whatever amount you paid for the bond). In return, the government pays you interest on that amount. Then, when the bond reaches its maturity date, you receive back the face value of the bond.
Treasury bonds have zero default risk; they yield consistent, steady returns across long periods (they take 20 and 30 years to mature). Compared to corporate bonds that deal a higher risk and higher interest, Treasury bonds yield lower interest while still guaranteeing a steady return and a secure payout when held maturity.
These are great vehicles when you want to secure a lump sum of money for your future and still offer the ability to cash them out before they mature if need be. When you’re looking for an option with a shorter maturity period (with lower interest rates), Treasury Notes and Treasury Bills may be better solutions.
4. Fixed Annuity
If the past three savings vehicles did not pique your interest because of lower interest rates, a fixed annuity might be an option for you.
For reference: according to Bankrate, the top CD’s five-year interest rate in January 2022 was 1.30%, while an average fixed annuity’s interest rate was 3.15% in the same month.
You pay for an annuity through an insurance company, either with a lump sum or in payments. The insurance company then pays a set interest rate (you can count on guaranteed minimum rates) on your contributions.
There are two phases in an annuity: the accumulation phase in which you’re contributing payments, and the annuitization phase in which you begin to receive your initial investment and interest back in payments (you decide how you want the payments set up).
When you’re making payments, you can expect your money to grow significantly. The bonus is that the money in your annuity is tax-deferred until you begin receiving it. If you die with a fixed annuity, the money is easily heritable.
Fixed annuities with increased interest rates and secure payouts come with less liquidity and more restrictions to access your money early.
Depending on your situation (preparing for retirement, saving up for a house, etc.), you can choose the length of the accumulation phase to begin receiving the money when you think you’ll need it.
5. Roth IRA
Another way to grow your savings long-term and enjoy tax-free withdrawal later is through a Roth Individual Retirement Account (IRA).
While a 401(k) can only be obtained through an employer, anyone with income can open an IRA. And much like a 401K, an IRA was designed to encourage people to save for the long-term. Because of this, there are some restrictions and tax penalties to prevent you from cashing it all out before you turn 59 1/2.
If you’re planning on investing considerable sums of money into your long-term savings plans, this might not be a good option for you. An IRA has several limits on how much you can contribute and how often.
If you’re interested in opening a Roth IRA account, you can find options at most banks, financial service providers, or credit unions.
The investing app Acorns also offers IRA investing through their Acorns Later program.
Saving and investing your money thoughtfully and efficiently will be what makes your financial goals.
Whether it’s funding a comfortable retirement, buying a house, going on your dream trip to Paris, etc., establish short, medium, and long-term savings goals that you consistently prioritize and fund.
Growing your money and making it work for you is easier than you think with these savings vehicles.