Well, it depends. How about that seemingly wishy-washy answer? Is this money emergency funds or longer-term monies? That will drive our answer.
You’re right, interest rates remain very low with bank deposits and money market type accounts earning almost nothing. However, if the money is in the bank because it comprises your emergency fund – money you may need to tap at anytime in the event life throws you a curveball – you want it to remain safe, stable, and accessible. In other words, leave it where it is. That pot of money, by the way, should cover at least three to six months of living expenses.
Perhaps, though, you could leave part of the emergency money in savings and allocate the rest to longer-term, but still conservative vehicles. For example, if you have $20,000 in emergency funds, you could leave $10,000 in a savings account and use the rest to buy 12- or 18-month certificates of deposit, or invest in an ultra-short or short-term bond fund. While these bond funds carry some market risk, they’ll likely give you a little more bang for the buck.
On the other hand, if this money is actually set aside for retirement or other longer-term goals and not your emergency fund, you could consider investing in a mutual fund or funds that invest in a combination of stocks, bonds and cash. While this approach offers more upside potential, it also could lead to a loss of value and therefore wouldn’t be appropriate for emergency fund savings.
This should give you some ideas. Feel free to give one of our advisors at USAA a call at (800) 531-3392 if you would like to discuss some possible solutions to your specific goals and objectives.