Rates on high-yield savings accounts and certificates of deposit are pretty good right now. That doesn’t surprise most personal financial experts, who say the clock is ticking to take advantage of high interest rates on savings deposits.
Choosing the best savings account is more than just getting a bigger return on your money, though that’s essential. Experts recommend selecting an account based on your goals, risk tolerance, time frame and other factors.
It made me wonder: Where are personal finance professionals stashing their own savings? I rallied a few of CNET Money’s Financial Review Board experts to find out.
Rita-Soledad Fernandez Paulino
Separate short-term and long-term savings
Rita-Soledad Fernandez Paulino: Founder of Wealth Para Todos
Rita-Soledad Fernandez Paulino, who goes by “Soledad,” has her 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-earning accounts.
I bonds are low-risk US Treasury–issued bonds with a fixed interest rate that help protect against inflation. I bonds can be cashed in after 12 months, but you’ll miss out on interest if you withdraw before five years. That’s why they’re better suited for long-term goals when you want a solid return, minus the volatility of stocks. Soledad has $10,000 in I bonds in her name and another $10,000 in her husband’s name that she secured with a rate of 4.30%. That money, plus the interest it accrues, will eventually go toward a down payment on a house.
Soledad added a six-month CD, which offers a guaranteed rate of return, to her savings strategy in hopes that she can make that down payment once the CD matures. A 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 half a year, though you’ll pay a penalty if you withdraw the money before the term ends.
As for the third option? “I keep my savings for things that I need sooner than later in a high-yield savings account,” Soledad said. High-yield savings accounts get better yields than traditional savings accounts, making them a solid option for an emergency fund, sinking fund or other savings goal that requires accessibility.
Soledad said she’s trying to maximize the money she earns in her sleep. “I like earning cash from credit card rewards, interest from high-yield savings accounts and dividends from investments in the stock market,” she said. That’s the difference between storing your money in a piggy bank versus an interest-bearing deposit account. Though money in the piggy bank is easily accessible, it’s losing value to inflation, and you aren’t earning any interest while you sleep, she added.
Spread your savings between various high-yielding accounts
Bernadette Joy: Founder of Crush Your Money Goals
Bernadette Joy has her savings spread across four accounts -- a high-yield savings account, 12-month CDs, Treasury bills and a money market fund -- all with annual percentage yields between 4% and 5%.
Like Soledad, Joy keeps her emergency fund in the high-yield savings account, along with the funds needed for her business. “The high interest rates help you earn a little money risk-free,” Joy said.
The money for her down payment on a home is stored in two separate 12-month CDs at two different banks. That’s a strategic move on her part. It means each account is insured by the Federal Deposit Insurance Corporation for the maximum amount of $250,000.
Joy keeps the remainder of her savings in Treasury bills and a money market fund. “I chose these two vehicles because I’m focused right now on preserving rather than accumulating,” she said. Because she’s nearing retirement, her goal is to develop a tax-advantaged withdrawal strategy, she added.
Treasury bills are short-term US government debt securities that mature over a period of four weeks to one year. Unlike Treasury notes and bonds, Treasury bills don’t pay a fixed interest rate but are assigned a value that’s redeemable if held to maturity. Joy pointed out that earnings from Treasury bills are exempt from state and local taxes.
A money market fund, not to be confused with a money market account, is a mutual fund that invests in short-term debt like government bonds, treasuries and cash. Money market funds are considered low-risk investments, but they aren’t insured by the FDIC.
“I teach my students to not think so far ahead that they get analysis paralysis and don’t make any move at all, and these options are safe bets for beginners,” Joy said.
Be flexible, but also strategic
Bola Sokunbi: Founder of Clever Girl Finance
Bola Sokunbi keeps her short-term savings (any money goal with less than a five-year timeline) split 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 get quick access to the full amount of my funds if needed,” Sokunbi said. She put the rest in longer-term CDs so that she could take advantage of higher interest rates. The money in her 24-month CD isn’t tied to a specific goal, she noted.
Certificates of deposit accounts tend to have higher interest rates than many high-yield savings accounts, but there’s usually an early withdrawal penalty if you try to pull out your funds before the term ends. Some people build CD ladders to divide up money across several CDs with different terms, allowing for more flexibility.
Sokubni didn’t opt for a CD ladder because she prefers not to structure so much cash that way. Instead, she looks at where interest rates are when a CD term ends and decides then whether to open another CD.
Both of these savings options are on the more conservative end of the saving spectrum, according to Sokunbi. “HYSAs give you fast access to your money when you need it, but they are more susceptible to losing value from inflation if the interest rate you earn is lower than the inflation rate,” she said.
When interest rates inevitably begin to fall, Sokunbi plans to continue her strategy. “I have a percentage of liquid funds for emergencies and short-term and long-term investing goals to get ahead of inflation and for growth and appreciation,” she added.
Weigh your priorities before you decide
Deciding the best place for your savings depends on your financial goals and comfort level. High-yield savings accounts, CDs, Treasury bills and I bonds offer various degrees of financial returns and security, but you’ll need to figure out your risk tolerance and savings timeline before jumping in.
Whether you’re following one expert’s advice or trying a variety of options at once, do your research and consider other factors in your savings journey besides the interest rate. Maximizing your money’s growth is important, but you should also weigh maintenance fees, minimum deposit requirements, transfer limits, and branch and online access.