Handling Short-Term Savings

Smart Strategies for Short-Term Savings

Short-term savings is money that you will need to access in 1-5 years. This might be cash for a planned vacation, medical expense, or perhaps down payment on a house. It’s important to know where to keep your cash in the meantime.  Here are some tips to help you manage your short-term savings effectively.

Tip #1: Keep It Liquid

Make sure you will be able to access the money when you need it without incurring any penalties! Some accounts or investments will charge you penalty fees for taking the money out early, and some will be impossible to access at all. Make sure you avoid those situations.

Quick Tip: Real estate investments are generally NOT considered liquid.

Tip #2: Avoid the Stock Market

Even though some mutual funds or index funds can be safe investments over time, they can still be volatile and risky in the short term. If you happen to need the money while there’s a dip in the market, you will have to sell your stocks at a loss!

Tip #3: Earn Interest

It’s important that your savings earn interest in the meantime.  Otherwise, your cash will lose value due to inflation.

Tip #4: Choose a High Yield Savings Account

Avoid traditional savings accounts that pay well below 1% interest which doesn’t keep up with inflation. Instead, choose a High Yield Savings Account.

About High Yield Savings Accounts

• Offered by Online-Only Banks: These accounts are usually offered by online-only banks without physical branches.
• Easy Transfers: You can link your regular checking account and transfer money online.
• No Risk of Losing Money: You can pull your money out at any time without risk of losing money.
• Stick with Larger Banks: There are some smaller banks that offer high yield accounts but with a lot of hidden fees and big changes in rates. It’s better to stick with larger, more familiar banks like Capital One, CIBC, American Express, etc.
• Check for Fees: Look out for any required minimum balances or fees they may charge (most big banks don’t have them).
• FDIC Insured: Make sure the bank you choose is FDIC insured. This means the federal government will insure up to $250,000 in a rare case the bank goes bankrupt.