Time for another reader question! This one came via email.
I am not working due to a health issue. Where is the best place to put money so that I can garner some sort of an income?
This is a tough question. I am going to guess that you need money now. If you need it in the future then a 401K or Roth IRA would be your best option. But, the money those earn will not be available to you until you retire. It also sounds like this is a short-term problem, which rules out an annuity.
If you want to earn interest on money that you have then you should use a money market account, savings account, dividend stocks (riskier than a traditional savings account), or Certificate of Deposits. The amount you earn is directly related to how much you have to invest. Investing in treasury bills is long term and stocks are long-term so those would not be good options for this situation.
You can shop interest rates using Bankrate.com. They will tell you the interest rates for online banks as well as local ones. Money market accounts usually have higher interest rates than savings accounts, but make sure you check to see if there is a minimum balance requirement.
Certificates of Deposit generally have the highest interest rate (out of this group). You will not be able to touch the original amount that you invest until it matures (you can choose a timeline that is as short as 3 months up to about 5 years), but with a bank like ING DIRECT you can have the interest from the CD deposited into your regular account and then you can use that money as you see fit. FIRE Finance did a story on a couple who retired early only using the interest from CD’s!
If you do decide to go with ING DIRECT then you can start with their Electric Orange Account. This is a checking account, but it has an interest rate so the money that you are using to pay bills will also accrue interest.
The other option I listed was dividend stocks. When you buy a stock that pays a dividend you will get that dividend in the form of re-investment or a check when it comes due. The money you used to purchase the stock will be “stuck” until you sell. If you want to receive your dividends in a check form then you will not have to wait until you sell to use it on whatever you want.
Dividends can change. The company can decide to raise them, lower them, or do away with them completely. If you want to learn more about dividends then I strongly suggest reading through the information at Fool. They do a wonderful job of explaining how it works.
{ 5 comments… read them below or add one }
Skip the dividend stocks. Just keep an ample amount for emergencies and short-term needs in a savings account (or CD, if you want to get fancy), and put your long term (10+ year) savings in a Roth IRA, 401(k), or a low-fee taxable index fund comprised of stocks.
Oh, and ING Direct is a fantastic bank. I have a checking account and savings account with them.
ING is great 🙂 I have been with them for years.
Dividends are riskier, but I wouldn’t count them out. Out of the few stocks I do have, the dividend ones are doing the best under these economic conditions 🙂 Pair that with the “low” price on some value stocks and you have a pretty good option if you are looking at long term stock plus the shorter term dividend rate.
Thanks for the mention 🙂
You’re welcome 🙂 I thought you had a great article!