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It’s important to find the best home for your money. Here are three options to look at in April. [[{“value”:”
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Given the number of Americans who live paycheck to paycheck, having to figure out where to put your extra money is a good problem to have. And this month in particular, you may have more money at your disposal once your tax refund comes in.
Of course, the right home for your money will largely depend on your financial goals and needs. But here are three options worth considering this April.
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1. A savings account
Late 2023 data from SecureSave found that 63% of Americans were not equipped to cover a $500 emergency expense. But if you own a home or car, you’re probably well aware that a single surprise repair for either could easily cost twice that much money — or a lot more.
That’s why it’s so important to have a solid emergency fund — one with enough money to cover three months of essential expenses at a minimum. If your emergency fund needs work, the best place to put your extra cash this April is a savings account. And as a bonus, savings accounts are paying pretty generously these days, with many offering APYs (annual percentage yields) above the 4% mark.
Of course, that rate isn’t set in stone, and could go down as 2024 moves along. That’s especially likely given that the Federal Reserve is expected to move forward with rate cuts. But you might as well score that extra interest for now, while you can.
2. A CD
In March, the Federal Reserve opted to leave interest rates steady rather than move forward with the rate cuts it had alluded to in earlier meetings. That’s a good thing from a banking perspective, because it means that CD rates are still quite favorable today.
If you have money you don’t need for emergency savings or very near-term goals, then it could pay to put your cash into a CD. In fact, let’s say your next financial goal is to buy a house, but you know that’s not happening before early 2026.
In that case, what you may want to do is open a 12-month CD this month, while rates are up. That way, your CD money will free up in 2025. And then, you can see where you are with your down payment funds and go from there.
Now’s also a good time to open a longer-term CD, if that aligns with your financial objectives. For example, let’s say you have a child starting college in five years and you have separate investments to pay for that milestone.
You may also want to put some cash aside in case your investments lose value right when you want to start tapping them for tuition payments. A CD might be a good idea, because you can lock in a 4- or 5-year term right now at a favorable interest rate. And then, your money should free up just when you need it.
3. A brokerage account
Savings accounts are the best place for emergency cash and near-term goals, and CDs are a good option for mid-term goals. But if you’re looking to save for a far-off milestone, like retirement, or even college if your kids are really young, then investing your money is probably a better bet.
Sure, you might find a longer-term CD paying somewhere in the 4% or even 5% range now. But the stock market’s average annual return over the past 50 years has been 10%.
So let’s say you just got your tax refund and it’s $3,000. Let’s also say your oldest child is 3 years old and you want to put that money away for their college. If you were to invest it at 10% over the next 15 years, by the time your child turns 18, it’ll be worth about $12,500.
Even if you somehow manage to get a 4% return on that money for the next 15 years by sticking with CDs (which is unlikely due to anticipated interest rate cuts), in that case, your $3,000 would only be worth $5,400 by the time your child is ready for college. That’s a lot less than $12,500.
The best place to put your money this April hinges on your needs and goals. Think carefully about what those entail when making your decision.
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