It feels good to see your balance grow without having to lift a finger. We all want our hard-earned money to work as hard as we do, but navigating the different ways to store cash can feel overwhelming. You deserve to know exactly how to maximize those returns while keeping your funds safe and accessible.
Understanding return and liquidity
Banks want you to open accounts with them, and they reward you with extra cash called interest. However, the amount you earn can change, and some accounts make it harder to access your funds. It isn't always easy to choose, but there are two main concepts to balance here.
Return is the amount of money your account will earn. While this rate can vary, the risk is usually minor for accounts that come directly from banks.
Liquidity measures how easy it is to take your money out of the bank. Accounts that are less liquid lock up your money for a longer period of time. In return, though, these accounts usually pay you more interest.
The checking account foundation
Checking accounts are as liquid as it gets. You can access your funds instantly by using a debit card to shop, hitting an ATM, or writing a check.
These accounts are very secure because they are insured by the government up to $250,000 for individuals and $500,000 for joint accounts. The trade-off is that checking accounts pay little or no interest, though some banks might offer higher initial rates if you are a new customer.
Savings and money market accounts
If you are willing to give up a little liquidity, you can earn more interest. Savings accounts are a great step up. However, some ways to move your money, like remote withdrawals and transfers, are limited to six per month.
Money market accounts offer interest rates similar to savings accounts at many banks. While federal limits have been suspended, many banks still limit remote withdrawals and transfers to six per month. Both of these accounts are also insured.
Certificates of deposit (CDs)
A certificate of deposit, or CD, requires you to give up even more liquidity for even more interest. When you open a CD, you typically lock your money away for a set period of months or years.
A popular strategy here is "laddering." For example, you might have a certain amount of money handy and decide to divide it into three parts. Then, you might buy three CDs that hold your money for different amounts of time.
As time goes on, you can either remove the cash from each CD or put it back into another one. This provides a steady income and lets you benefit from the best interest rates as each CD grows. Like savings accounts, CDs issued by banks are insured.
Bonds and money market mutual funds
Bonds can take many forms, but they are essentially IOUs. When you buy a bond, you lend your money to a government agency or corporation for a set amount of time. In return, they promise to pay you interest.
You might receive payments monthly or quarterly, or you might get all the interest at the end of the term. Most bonds are fairly liquid and can be sold within a day or two if needed.
Keep in mind that the value of bonds can be volatile. Selling early can result in a loss. There is also the risk of default, which is when an agency or corporation fails to pay the interest they promised you. It is good to remember that bonds are generally not insured.
Money market mutual funds are different from bank money market accounts. Unlike bank funds where the bank sets the rate, money market mutual funds have fluctuating interest rates. They are very liquid, so you can withdraw some or all of your money at any time. They are not insured but are considered low-risk in most cases.
The Facet difference
We know that balancing liquidity and return can be confusing, especially since interest rates change often. At Facet, we believe your financial roadmap should be built around your life, not just interest rates. Our flat-fee membership model means we never charge based on your assets, so our advice remains objective.
We pair you with a CFP® professional who helps you navigate these choices. We are always available to talk about your long-term goals and help you choose the accounts that work best for your unique journey.
Frequently asked questions
What is the safest place to put my money?
Checking, savings, money market accounts, and CDs issued by banks are generally insured by the government up to specific limits ($250,000 for individuals), making them very secure options.
Can I lose money in a bond?
Yes. While bonds pay interest, their value can fluctuate. If you sell a bond before it matures, you might get back less than you put in. There is also a risk that the issuer could default.
How many withdrawals can I make from a savings account?
Savings and money market accounts are typically limited to six remote withdrawals or transfers per month.
Why should I use a CD if it locks my money up?
CDs typically offer higher interest rates than regular savings accounts. If you don't need immediate access to the cash, they are a great way to earn a higher return with government-insured security.
