Time for another reader question! This one came from Misty,
My question would be where is the best place to have money that you’re saving – where would it gain the most interest?
First, I am going to assume that this is a short-term savings. If it is long term then you need to look into putting the money into an IRA/401K, or into stocks/bonds/etc.
Short term savings should be in a savings or money market account or possibly a Certificate of Deposit (CD).
The best money market / savings rates right now are:
- Dollar Savings Direct at 2.5%
- FNBO Direct at 2.4%
- Nationwide at 2.39%
- Capital One at 2.27%
I keep my short term money at ING Direct. They only offer a 1.67% APR right now, but since I am used to using them and I use sharebuilder (owned by ING) I keep most of my money there. Plus you can get $25 for signing up.
If you can look a little more long-term then go with a CD. CD’s offer higher interest rates, but you can’t touch the money until they mature without a penalty. The penalty is usually 3 months interest. If you set up a CD ladder then you will have more flexibility. The best rates for CD’s (1 year terms) right now are:
- GMAC at 2.95%
- HSBC at 2.5%
- Countrywide at 2.25%
Check your local banks to see if they can beat these offers, but usually online banks are much higher.
There are a lot of “high” interest CD’s being advertised right now for 5 or 6 year terms. Personally, I wouldn’t touch those with a ten foot pole. Interest rates are super low right now so it is not really a good idea to lock in a savings rate for that long. Most of the rates I see advertised are around 4%. Two years ago my regular online savings account was above that. Three months ago I bought a 1 year CD at 4.25%. Six years is a long time. You don’t want to have your money stuck in a low interest CD for years to come! It may sound high now, but in the grand scheme of things 4% isn’t worth locking your money up for 6 years 🙂