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The average total return on a stock market investment has typically been around 10%, and over the last 10 years, that’s increased to as high as 16%. So, for savers looking for a home for their money, it often makes sense to try their luck with stocks, bonds, and maybe even real estate. And that could be especially true now, considering the recent record stock performance many investors have benefited from.
At the same time, stocks are also known for big, sometimes overnight losses, and that’s something older adults and retirees on fixed incomes have little cushion to absorb. With inflation rising again and higher interest rates keeping borrowing expenses elevated, these retirees need to be even more judicious with where they keep their money. That’s especially true for larger, five-figure amounts such as $20,000.
Fortunately, there are still viable savings accounts for these retirees to explore now. But not every savings vehicle will be a fit, especially for those who need to maintain access to their funds in case of an emergency. Before getting started, it can be helpful for retirees to know where their $20,000 is actually worth keeping right now … and where it may not be.
Start by seeing how much interest your $20,000 could earn in a high-yield savings account now.
Here’s where retirees should keep $20,000 right now
While the following two options may not be right for every retiree looking for a home for their money now, for many others, these accounts could provide the right mix of a high rate and flexibility that they’ll need in their golden years:
A high-yield savings account
Interest rates on high-yield savings accounts sit around 4% now (or higher if you use an online bank), making this a profitable home for your money now. Plus, savers won’t have to forego access to their funds as they would with a certificate of deposit (CD)as high-yield savings accounts operate the same way a traditional account does, albeit with that higher rate.
While the rate on this account will be variable and subject to rise or fall based on economic conditions, that’s less of a concern now that interest rates are forecast to remain high through the end of the year. High-yield savings accounts are also FDIC-insured, adding another layer of protection for your money that you won’t receive with stock investing.
Learn more about your high-yield savings account options here.
A money market account
With top money market account interest rates in the high 3% range now, this account isn’t as profitable as a high-yield savings account can be. But it also has something high-yield savings accounts do not have: check-writing features, which will allow savers to streamline their banking needs with a single account.
Accessibility also won’t be restricted here, as it would with a CD, and money market accounts are also insured. In other words, if you want to earn an elevated rate on your money but want to be able to use those same funds to pay for expenses in retirement, this could be the right account for you.
Where retirees should avoid keeping $20,000 now
With the aforementioned accounts viable choices for their $20,000 now, retirees should strongly consider those types and do their best to avoid leaving their money in either of these:
A traditional savings account
Interest rates on high-yield savings accounts and money market accounts are both exponentially higher than what savers can secure right now with a traditional savings account. With the latter offering an average of just 0.38% now, not only will your money not be keeping pace with inflation (over 3% currently), but you’ll technically be losing money by not keeping these funds in a high-rate alternative.
A CD account
A CD can be the most profitable account type on this list if you take the time to shop around online. And the rate will be fixed, guaranteeing a high return on your money in a way the other accounts simply cannot. But you’ll need to sacrifice access to your $20,000 to earn that rate, and that could be untenable for many retirees who need to maintain access to their money at all times.
Attempting to hold a CD through its maturity date simply to earn that fixed return is also ill-advised, as an early withdrawal penalty on an account of this size (should savers need premature access) could prove to be costly. Retirees are generally better served using a high-yield savings or money market account instead.
The bottom line
Retirees with $20,000 that they want to protect and grow in today’s uncertain economy should strongly consider high-yield savings and money market accounts – and hold off on keeping the funds in a traditional savings or CD account. If you don’t have your money in either account type, however, it makes sense to get started now, with interest rates still high. With online marketplaces allowing you to compare rates, terms and lenders in one location, it’s easier than ever to get started today.