So you’ve got some extra cash these days, and not just the spare change in your couch cushions? Good for you. You might be tempted to stuff it under your mattress but, let’s face it, that’s not doing anyone any good. You do, however, want to be sure you’re putting it somewhere safe where it’s going to earn more money. If you’re not quite sure where that is, we can help. Read on for suggestions on where to put your extra money.
A High-Yield Bank Account
A traditional and safe option, this is an FDIC-insured savings account. The benefit is that it earns higher interest rates than a standard savings account, but it does come with some catches. It requires a larger initial deposit and your access to the account will be somewhat limited. Of course, this is only to benefit your bottom line. Banks will often offer this type of account to highly valued customers who already have other types of accounts with the bank.
A Money Market Fund
If you want to dip your toes into investing, this is a good option. This is a mutual fund that acts as a liquid short-term investment with high credit quality by investing cash and cash equivalent securities. The funds are regulated by the SEC (Securities and Exchange Commission) and are not FDIC-insured. You’ll want to look for a fund that has a history of performing well, or use the Dollar Daddy blog for advice.
Try Peer to Peer Lending
This is a fairly new resource that has been taking off as of late. Borrowers come to these peer-to-peer lending sites seeking loans that offer better terms than their banks. As an investor, the benefit to you is that you will get a much higher rate of return than what can be given at a bank. Lending Club is probably the most well known of these types of companies, and it allows for minimum investments of $25 into each loan you want in your investment portfolio. The company charges investors a one percent annual fee.
Bonds
You’ve likely heard a lot about bonds over the years but you might not realize that bonds are essentially loans as well. As this Investopedia article notes, “When you purchase a bond, you are lending money to one of these entities (known as the issuer). In exchange for the ‘loan,’ the bond issuer pays interest for the life of the bond, and returns the face value of the bond at maturity.” They have fixed interest rates. The nice thing about bonds is you can choose the type based on the amount of risk you want to take. Penalties may be incurred for early withdrawal.
Stock Market
This is the riskiest option of course, but it often offers the most dividends. Any advisor worth his or her salt will tell you that at least part of your savings should be invested in the stock market because, as the old saying goes, with no risk comes no reward. You can manage your own investments if you’ve got a good handle on financial resources. You can hire a financial advisor to do it for you, or you can consider a roboadvisor. You can invest using your 401K through your employment. Or you can go the safest route with Treasury securities. Whatever your investment behavior leanings are, the stock market should always be a top consideration.
Dip Your Toes in Real Estate Investment
If you don’t have enough capital to plunk down on an investment property or to become a landlord, you can still try your hand at investing in real estate. One easy way to do so is by joining a real estate investment group. What typically happens in this scenario is a company buys or builds condos or the like and then this company allows for investors to get in on the deal. The investment company handles the management tasks and, in return, it takes a percentage of the monthly rent. On the bright side, this allows a more hands-off approach to gaining income. On the downside, there are risks of vacancies occurring as well as management costs eating into returns.
Don’t hem and haw about where to put extra cash, as this allows your income to sit there without gaining any appreciation. Try any or all of these approaches on where to put your money and watch your nest egg grow.
