It might sound impossible, but every now and then, a large sum of cash could suddenly drop into your life. Perhaps you sold your home, received a gift or inheritance, or were paid a bonus by your boss.
Whatever the source of your windfall, you’ll have to figure out where to stash your cash while you decide how to make the best use of it.
Your choice should give you a high degree of safety and liquidity and minimize the investment expense, says Kent Grealish, a fee-only investment planner at Grealish Investment Counseling in San Bruno, California.
Your yield, or return on your investment, might be a factor, as well, but that’s likely to be lower on the list of requirements in the short term.
“The yield isn’t really relevant because you get what you get. You don’t want to chase yield and give up either safety or liquidity,” Grealish says.
With that in mind, here are some options to consider and some to scratch.
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Stick it in a mattress or drawer
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Despite the obvious risks, some people do keep cash stuffed in the proverbial mattress, secreted in a dresser drawer or buried in the backyard. Cash is untraceable, transportable and easy to spend.
The problem is that it’s also at risk of loss, destruction or theft. In fact, just about any other option might be safer and more secure than paper money.
Consider Christmas shopping, says Nessa Feddis, senior vice president for consumer protection and payments at the American Bankers Association in Washington, D.C. By carrying a wad of cash out to shop for holiday gifts, you’re opening yourself up to theft by someone stealing your wallet or handbag.
“It makes people more of a target,” she says.
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Open a checking account
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A safer option might be a checking account at a bank or credit union.
Checking accounts typically don’t earn much interest but can be a good place to park cash for a while.
A checking account is safe and secure, deposits can be withdrawn at any time, and there’s no risk to your principal, says Jason Lindstrom, chief marketing officer at Belvoir Federal Credit Union in Woodbridge, Virginia.
“If you’re looking to make money with your money, I probably wouldn’t recommend putting it in a checking account,” Lindstrom says. “But if you need your money liquid and can’t lock it up for a longer period of time, then it’s probably a benefit to put it into a checking account.”
Fees typically are nominal or waived if you maintain a minimum balance or if you complete a certain number of direct deposits or debit card swipes each month.
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Stash it in a savings account
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A savings account might pay a bit more interest than a checking account, making it another attractive alternative, Lindstrom says.
However, if you’ll need to access portions of your money from time to time, a savings account’s restrictions might prove problematic.
“You’re limited on the number of transactions you can have with a savings account,” Lindstrom says. “If you exceed (that number) in a month, you’re no longer able to do the next transaction. A savings account is supposed to be where you save, not do transactions.”
A so-called high-yield savings account might offer an interest rate bonus, but you’ll likely have to maintain a minimum balance of $5,000 or $10,000 in the account to capture that higher yield.
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Take your savings online
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Online banks typically offer higher interest rates than traditional, brick-and-mortar banks, says Ben Wacek, a Certified Financial Planner professional with Wacek Financial Planning in Minneapolis.
In fact, some online banks offer annual interest rates that are more like 1 percent, compared with nearly zero percent for traditional banks. For a $100,000 deposit, 1 percent represents $1,000 per year, Wacek says.
Online accounts typically offer complete liquidity, no minimum balance requirement, and no annual or monthly fees.
A downside: no neighborhood bank branches.
“You can call and talk to somebody who can help answer your questions, but you don’t have a physical location where you can go and talk to somebody in person,” Wacek says.
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Don’t forget CDs
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The principal difference between a savings account and a certificate of deposit is that the CD locks up your money for a set term. Take out the cash sooner, and you’ll be charged a penalty.
CDs also can be disadvantageous when interest rates are low and upward pressure could cause yields to rise, Wacek says.
“If you lock in a longer-term CD, it’s possible that a couple of years from now, you would’ve been better off if you’d kept the cash completely flexible in an online savings account,” he says.
Feddis points out that several CDs that expire every few months on a rolling basis in a CD ladder can offer more flexibility than one larger CD with one end date.
“If interest rates go up, you’ll have access to some of the money to take advantage of those rising interest rates,” she says.
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Try Treasury bills
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Whether online or offline, most checking and savings accounts and CDs offer deposit insurance up to $250,000 — an important benefit.
But suppose you need to stash more than $250,000. In that case, you might want to look at U.S. Treasury bills, or T-bills, which Grealish says are “absolutely liquid — and really cheap to buy and sell if you’re with a reputable firm.”
“The Treasury sells three-month and six-month bills every week,” he adds. “It’s a Monday auction, and if you put your order in a few days ahead of time, (the investment firm) will gang all the orders together, buy them and distribute them to their clients.”
T-bills are U.S. government debt, so there’s no risk you’ll lose your principal. “You can’t get a higher degree of safety than a Treasury bill,” Grealish says.
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Think short-term bonds
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If you’re planning to park your cash for at least five years, you might want to consider options that are more like investments than savings.
An investment might generate a higher return, but all investments come with the risk that you could lose some or all of your money.
For example, a mutual fund that invests in short-term bonds might increase your income by a little bit, but if interest rates rise, the value of the fund is likely to decrease.
“Your principal isn’t protected, so years from now when you want to take that money out, your principal potentially could be less than you originally put in. If you’re looking at five years or less, there is definitely more risk with that strategy,” Wacek says.
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These options are volatile and risky
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There are also even riskier options such as gold, which comes in bars, coins, jewelry, stocks and funds.
Gold isn’t a good place to park cash because it’s as volatile as an investment and doesn’t produce any interest or dividends that might offset a drop in the market price.
“It’s actually a pretty risky investment, especially if it’s just a short-term holding spot,” says Wacek.
Grealish says any investment that claims to combine low risk and high return is probably too good to be true and should be avoided.
“If something promises you great safety and liquidity and a high yield, there is something wrong,” he says. “That shouldn’t exist. There is no magic.”