Should I Keep My Extra Cash in a Savings Account or Somewhere Else?

If you have some extra cash sitting around, you’re probably wondering the best place to keep it. Should it stay in your savings account, or is there somewhere better to grow that money? The right answer depends on your goals, your timeline, and how much risk you’re comfortable with.

Let’s break down the most common options for keeping extra cash safe - and what you should know about each.

Traditional Savings Accounts

Traditional savings accounts are what most of us start with. They’re offered by banks and credit unions and are incredibly safe because your money is FDIC insured up to $250,000. This means even if the bank fails, your money is protected.

The biggest downside? Interest rates on traditional savings accounts tend to be very low, often under 0.5%. That means your money isn’t really growing much and might not even keep up with inflation. But the benefit is easy access: you can deposit or withdraw money anytime without penalty.

If you want safety and liquidity, traditional savings accounts are a good spot to park your emergency fund or cash you might need on short notice.

High-Yield Savings Accounts

If you want your cash to earn a bit more, high-yield savings accounts are a smart next step. These accounts are typically offered by online banks and pay much higher interest rates, often between 3% to 5% or more, depending on the current market.

Like traditional savings accounts, high-yield accounts are FDIC insured and keep your money safe. The tradeoff might be that these accounts are online-only, so you might not have a physical branch to visit. Still, most offer easy transfers and mobile apps that make managing your money simple.

A high-yield savings account is a great place for your emergency fund or cash savings if you want to earn more interest without risking your principal.

Certificates of Deposit (CDs)

Certificates of Deposit, or CDs, are another option if you’re willing to lock your money away for a fixed period, usually anywhere from 3 months to 5 years or more. CDs typically pay higher interest rates than traditional savings accounts because you’re agreeing to keep your money deposited without withdrawals until the term ends.

The key thing to know is that if you withdraw early, you’ll usually pay a penalty, which could eat into your earnings. But if you don’t need immediate access to your cash and want a guaranteed return, CDs can be a solid choice.

They’re also FDIC insured, so your money is safe. You might consider “laddering” CDs - staggering maturity dates - to keep some liquidity while maximizing interest rates.

So, Which One Should You Choose?

• If you want better interest but still want easy access, a high-yield savings account is your best bet.

• If you can lock your money away and want a higher guaranteed return, consider CDs.

The best place to keep your extra cash depends on your goals. For emergency funds and short-term needs, liquidity and safety are key, so savings accounts or high-yield savings are ideal. For longer-term cash savings that you won’t touch, CDs offer better returns.

Remember, even with cash savings, it’s important to consider inflation. If your money isn’t growing at least as fast as inflation, you’re losing purchasing power over time. Balancing safety, growth, and access is what matters most.

If you want help creating a plan for your cash savings or exploring other smart ways to grow your money, book a free consultation with one of our financial experts today.