If you’ve moved beyond basic financial advice—live below your means and set aside funds for a rainy day—you may be wondering what to actually do with these rainy-day funds. With inflation on the rise, keeping excess cash in a checking or savings account could erode your purchasing power over time.1 What should you do to put these extra funds to use? Below, learn more about four alternatives to checking and savings accounts.
Certificates of Deposit (CDs)
CDs generally pay a higher interest rate than savings accounts. In exchange for this higher rate, the money can be tougher to access in an emergency—if you cash out a CD before it matures, you may forfeit some or all of the interest you’ve earned. However, if you’re setting aside money you won’t need for a while, or if you’d prefer to have your money inaccessible, so you’re not tempted to spend it, a CD may be a good way to boost your interest rate while doing so.
Peer-to-Peer Lending
If you’d like to earn some interest while helping others, consider signing up for a peer-to-peer lending service. These services match prospective individual lenders with others who wish to borrow funds, allowing you to lend money directly to someone for their needs, such as to help them pay rent, purchase a vehicle, or even start a business. Unlike traditional savings accounts, this type of account isn’t FDIC-insured and carries a risk of loss if the borrower defaults on the loan. Don’t put more into a peer-to-peer account than you’re willing to lose.
High-Dividend Stocks
Investing in a stock that pays a hefty dividend could potentially let your money grow. When a company pays a dividend, it distributes them to everyone who holds a share of stock as of the distribution date—and reinvesting these dividends back into the underlying stock may allow you to grow your holdings for free. Like peer-to-peer lending, stock investing carries a risk of loss, and it’s important to research any stock before putting money into it.
Online Savings Accounts
Many online-only savings options offer relatively high interest rates, even in today’s low interest rate environment. Because these online banks don’t have the same overhead costs as brick-and-mortar banks, they can offer higher interest rates and more favorable terms. And because they’re entirely digital, they can allow you to easily transfer money into and out of the account or even access funds through an ATM.2
Important Disclosures:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
1 https://www.investopedia.com/terms/p/purchasingpower.asp
2 https://financebuzz.com/how-does-online-savings-account-work
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