by Kailey Hagen | Updated July 17, 2021 - First published on Jan. 14, 2021
Many or all of the products here are from our partners that pay us a commission. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.
Start 2021 off strong by making these savings goals your top priority.
Saving money is key to reaching your goals and maintaining financial security, but knowing where to stash your savings is also an important skill to master. The best place for your money depends in part on your situation, but there are a few places everyone should at least consider putting some of their cash, if they haven't already. Let's take a look at three of the most common.
Tips and tricks from the experts delivered straight to your inbox that could help you save thousands of dollars. Sign up now for free access to our Personal Finance Boot Camp.
By submitting your email address, you consent to us sending you money tips along with products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Statement and Terms & Conditions.
Last year drove home the importance of having an emergency fund to help cover unexpected expenses, like an insurance claim or a home repair. It can also help you and your family stay afloat following a job loss.
If you don't have an emergency fund already, building one should be your top priority. Aim to save at least three months of living expenses, though six months is even better if you can afford it. Set aside as much as you can spare every month until you've hit your target. And don't forget to replenish your fund if you withdraw money from it so you're prepared for the next emergency.
Keep your emergency fund in a savings account, preferably a high-yield savings account that earns an APY above the national average. While it may be tempting to invest these funds, it's generally not a good idea to do so because you don't know when you'll need to use that money. If it's all invested, you may be forced to sell at a loss to get the funds you need in a pinch.
Retirement may not seem like a priority, especially if you're relatively young, but thinking that way could easily cost you $1 million to $2 million. Starting as young as you can makes saving this large sum a little easier because your investments will have more time to grow before you need to withdraw them.
A 401(k) is a good place to begin if your company offers one, especially if it matches some of your contributions. You should be able to defer a dollar amount or percentage from each paycheck so you don't have to remember to make contributions manually. Individuals under 50 can contribute up to $19,500 in 2021, while those 50 and older may contribute up to $26,000.
If you don't have access to a 401(k), consider opening an IRA. You may only contribute up to $6,000 to one of these in 2021, or $7,000 if you're 50 or older, but you can open one with any broker and invest in almost anything.
While high-yield savings account rates aren't what they were a year ago and likely aren't going to return to those high levels anytime soon, one of these accounts is still a good place to put extra money you plan to use within the next five years or so. That's because you'll earn a higher APY than you'd get with a savings account at a brick-and-mortar bank.
You're only allowed six free savings account withdrawals per month under federal law, but that's still pretty lenient compared to a certificate of deposit (CD), another common tool for savers. CDs require you to lock up your money for a certain amount of time, which could be anywhere from a couple of months to several years. In exchange, you get a locked-in interest rate for the full term.
Given the uncertainty around how the economy will rebound in 2021 as COVID-19 vaccines become more readily available, it makes more sense to choose a high-yield savings account that lets you withdraw funds at any time. Locking yourself into a CD at today's low rates could possibly prevent you from securing a higher rate in a few months or a year from now. With a high-yield savings account, you're free to move your money between banks and capitalize on better rates elsewhere anytime you want.
It's ultimately up to you to decide where to put your money and how much to place in each type of account, but if you're trying to improve your financial security, stick to these suggestions in the order they're listed above.
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. The Ascent's picks of the best online savings accounts can earn you more than 8x the national average savings account rate.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.