At the time of writing this initial post (2021), interest rates are at very low levels. Therefore, you may be thinking about where to put money for short term savings. In this environment, it could be very tough to make your short term cash work for you.
Whether you are saving money to open your own gym, physical therapy practice, wellness studio, or for any traditional savings goal (emergency funds, vacations, children’s education, a new home, retirement, etc.), it is very important that you are making the most out of your money.
No matter the goal, you want to optimize how hard your money is working for you, given the specific time horizon for your goal.
As an example, if you are saving for a vacation in one-year, you want to make sure that the money is still there when you need it (short-term). You would most likely save the money for your one-year vacation goal in a checking, savings, high-yield savings, CD (certificate of deposit), money market, ultra short-term bond ETF (exchange traded fund), or similar cash equivalents. The key here is that you will not accrue much interest, yield, or return from putting that money in any of those vehicles (or accounts) for just one-year. However, because you need the money in that short time period (one-year), it is okay to forgo such a return since the priority is to have that money available and liquid within one-year.
A Contrast, Long-Term Savings
On the opposite side of the spectrum, if you are considering saving for retirement and are in your early earning years, you have a much longer time horizon than just one-year. For example, if you are thirty (30) years old today and plan to retire at age sixty-five (65), you have thirty-five (35) years to let your money work for you. That is a lot of time for compounding and the markets to work in your favor.
Because you do not need that money until some very long time in the future, you are able to take some risk in the short-to-medium-term, with the result being a higher reward in meaningful returns to your savings (or investment) in the long-run. In this example, you would not want to put your retirement savings in the same vehicles (or accounts) noted above for the one-year vacation goal. Instead, it is better to invest in the equity (stocks) markets and fixed income (bond) markets in some percentage allocation based on your risk tolerance, time-horizon, goals, etc. Given that we are talking about your retirement savings in this example, you would be using account types such as qualified retirement accounts (401(k), 403(b), Profit-Sharing-Plan, etc.), other retirement accounts (Traditional IRA, Roth IRA, SEP IRA, etc.), or any combination.
We will save a deeper dive discussion on retirement planning for a future article, but we would like to point out that no matter what your profession as a “Movement, Health, & Healing Pro” is – Physical Therapist, Personal Trainer, Acupuncturist, Chiropractor, etc. – planning for retirement is something that you should definitely consider as you think about your overall financial picture. The earlier you start, the better!
For this article, our focus is more on what options we have for making our money work best for us, given our shorter-term goals. The motivation for this article is that we often hear from colleagues, friends, and family that they are still stashing their savings in brick & mortar banks with yields close to 0.00%. Typically this happens when you have a savings account at the bank where your primary checking account lives. The issue that we have is that there are so many other options out there that will simply provide just a little more yield on short-term savings…without additional costs.
According to a Bankrate poll, “one in 5 Americans earn less than 1 percent APY. Nearly 1 in 4 (24%) aren’t earning any interest at all.” These are staggering stats and even considering that this data is from 2019, my guess that today (2021), those statistics are even worse given the lower interest rate environment.
Now, the big question becomes, “what interest rate should we expect and where do we open an account to obtain a higher interest rate?”
Given the timing of this article (2021), interest rates are at all-time lows. However, there is still yield or interest to be had when comparing to a savings account at a traditional bank or even worse, cash simply stashed under your mattress.
Where To Put Money for Short Term Savings
There are many options nowadays where you can find these higher-yielding rates (relative). The accounts are easy to set-up and in most cases, the user-interface is much more digitally friendly than traditional banks. All of these can be found online and an account can be set up in less than five-minutes. Some of the better options include MaxMyInterest, Marcus Online Savings, Ally Bank Savings, Wealthfront Cash, Betterment Cash Reserve, along with many others.
We highly suggest that you review the different offering mentioned above and decide which works best for you.
Avoid The Enticing Game Of “Chasing Yields”
The one caution that we advise that you consider is to not simply “chase yield or returns” by jumping from one provider to another as rates change. The reality is that rates will change depending on the market, other interest rates, inflationary expectations, etc.
As an example, if you were to open an account at Ally and the rate goes down 0.10% in 6-months, that isn’t enough to move the needle to warrant jumping to a different provider that is marketing a rate that is 0.20% higher.
What you need to know is that a lot of the online savings account banks will actually increase their rates (at times) to entice new accounts, and then eventually drop the rate where most of the market rates are. Therefore, if you did jump ship, you would have done so with the hassle of creating another account, only to go back to the same rate where you started.
However, if your rate does go down dramatically and there are materially better offers out in the marketplace consistently, it could make sense to create a new account elsewhere.
Concluding Points For Movement, Health, & Healing Pros
One final point that is important and it was briefly touched on in the beginning of the article. Outside of the online high-yield savings account mentioned just a bit ago, there are many different options out there for short-term savings. To reiterate, there is a wide spectrum ranging from checking, savings, high-yield savings, CD (certificate of deposit), money market, ultra short-term bond ETF (exchange traded fund), or similar cash equivalents. We will not delve deep into these today, but it is important that you consider and research into all of these, focusing on your specific goals.
After reading everything noted above, we hope that you understand that they key is that you should always make sure to optimize how your money is working for you. If you are saving money, that is a great first start. The next step is to align your savings goal with a time period and then find the appropriate savings account / investment to allow your money to grow, compound, and work for you.
Additional Reads & Resources
Best Short-Term Investment Accounts For Money You Need In 5 Years
The 10 Best Investment Strategies For Short Term Savings Goals
The 7 Best Places To Put Your Savings
Best Short-Term Investments For Your Money
11 Personal Finance Tips For Personal Trainers That Are Self-Employed
For more resources, you can always visit our “Resources” page.