Looking for the Best Place to Stash Your Cash?
Dear Carrie: I just lost my job and received my final paycheck with a small amount of severance money. I'll probably need the money over the next few months, especially if my job search takes a long time, but would like to invest it in the meantime. Where's a good place to put it? -- A Reader
Dear Reader: I'm sorry to hear about your losing your job. It's a difficult time for so many right now. Thankfully, though, the severance you received is a bit of a life raft. And although I understand your desire to invest these funds, my sense is that it would be better for you to prioritize safety over growth. Let's walk through your options while you are between jobs and may need access to the funds.
The Big Three of Investing
There are three major variables to consider any time you invest money: your natural ability to deal with risk, the amount of risk you can afford to take and the amount of time until you will need your money. All three are important considerations.
Therefore, even though you may temperamentally take risk in stride, you have to think about what it could mean to your finances if you were to lose some (or all) of this money. Also consider that the shorter your time frame, the more careful you have to be because you may not be able to ride out a decline.
As you review your options below, your goal is to find the best balance between liquidity (how quickly and conveniently you can access your cash), safety (the return of your money) and yield (the return on your money).
In general, the safer and more liquid the account, the lower the rate of return. And in your case, my feeling is that you should accept a lower return in order to safeguard what is now your emergency fund.
Where to Stash Your Emergency Fund Cash
The following are all insured by the Federal Deposit Insurance Corporation up to $250,000 per account holder, per bank and per ownership category; therefore, they are considered very safe. The National Credit Union Administration insures checking and savings accounts at credit unions up to the same limits.
-- Interest-bearing checking account: You can write checks and may have easy ATM access to your cash.