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How do I find my savings a high-yield home?

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Dear Dr. Don,
Where is the highest yield on my savings? I just sold my home and am sitting on the proceeds.

— Jerry Jericho

Dear Dr. Don,
I currently have $12,000 sitting in a regular bank account, which I will not need to access for probably the next two years. I was wondering where you think I should invest the money to earn a high yield? I would appreciate every possible suggestion you may have.

Thank you,
— Danny Depositor

Dear Jerry and Danny,
First, Jerry, congratulations on selling your home. It has been a tough market, and even though the experts are saying the housing market is turning around, it still is coming off a bottom.

Don’t look solely for high yield. You also want to consider the account’s safety, liquidity and convenience. If you’re sitting on house proceeds and plan on reinvesting them in the purchase of a new home, then you’ll need the money to be fairly liquid. You wouldn’t choose a five-year certificate of deposit, for example, because you might find yourself paying the early withdrawal penalty to get the money out of the account.

You can compare rates in your local market or nationwide for the different types of bank accounts. You’ll find that money market accounts or high-yield savings accounts offer rates that are comparable to two-year CDs, so there’s not much reason to commit to a one to two-year CD.

Credit unions and regional banks can give the big banks a run for their money when it comes to yield. If the deposit is insured by the Federal Deposit Insurance Corp. or National Credit Union Share Insurance Fund, you don’t have to go with a name you know to keep your money safe.

As for you, Danny, like most investment professionals I make a distinction between savings and investment. With savings, the primary concern is the protection of principal. With investment, the primary concern is more one of building wealth.

You say you want to invest, but you have only a two-year investment horizon. I’d suggest that you’re more interested in savings because you’re really not willing to put the principal at risk in the hopes of earning a higher return.

Said differently, one of the most important outcomes in investing this $12,000 is to have it available to you, in full, two years from now. You don’t want to take on a lot of investment risk in the hope of earning a higher yield than you would in a savings account or CD.

It’s easier to take on investment risk over a longer investment horizon because the portfolio has some time to rebuild, if necessary. If you put this $12,000 to work in the stock market and the market sells off over your two-year investment horizon, you could end up with a lot less than the $12,000 invested. The potential gain by investing in the stock market is overshadowed by the potential loss of principal.

I’d suggest that you use Bankrate’s Compare Rates feature to find your savings a home in an insured bank account with a relatively high yield.

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