I’m trying to reach several savings goals this year while accounting for higher prices due to inflation. My family plans to buy a new car, make home renovations and add more money to our emergency fund. A “one size fits all” savings strategy simply won’t cut it.
I already have several helpful features set up with my Ally account to help boost my savings, including automatic transfers. But since interest rates for high-yield savings accounts and certificates of deposit are still favorable right now, I wonder if I should spread my money out across other accounts to maximize my earning potential.
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I asked two certified financial planners for their insight. They convinced me that where I stash my money matters, and diversification is important. Here’s a strategy experts recommend for long-term and short-term savings goals.
Use a high-yield savings account to keep cash on hand
Like many experts, Kyle Luetters, a certified financial planner, recommends keeping three to six months of living expenses in a high-yield savings account for emergencies. Since tariffs are expected to raise the cost of goods and services, he also recommends having additional savings easily accessible to keep your cash liquid.
Luckily, I already keep my savings in a high-yield savings account, where I earn interest. The only problem is that savings accounts have variable rates, so when the Federal Reserve resumes slashing interest rates, your high-yield savings account rate will likely go down as well.
Use short-term CDs for goals within the next year
Another certified financial planner, Andrew Latham, says if you don’t need money for at least a few months, it should be stashed in a CD so there’s guaranteed interest.
Since I likely won’t renovate my bathrooms until the end of the year, I’m going to move that cash into a short-term CD. Short-term CDs can give me a fixed APY for three, six or 12 months until the specific term expires. Then, I can withdraw those funds when I need them without an early penalty fee. Plus, the rates for some CD terms are still high, hovering around 4.50% APY.
“If you have a low-risk tolerance and want guaranteed returns, locking in a short-term CD at today’s high rates could be a safe move, especially since rates will likely drop shortly,” said Latham.
I might also consider building a CD ladder by setting aside money in multiple short-term CDs. Luetters recommends this method for capitalizing on fixed yields depending on your investment goals and time horizon. Laddering CDs would give me access to money when I need it while removing the temptation to spend it sooner.
For my own CD ladder, I’ll probably choose to open two CDs: a six-month CD with the money for my bathroom renovations and a one-year CD with the money to redesign my master suite. I just have to make sure the timing is right because if I pull out the funds early, I would have to pay a penalty fee.
Don’t bother with long-term CDs
Many people consider long-term CDs for goals like retirement since they’re safe and low-risk investments. But Latham doesn’t recommend long-term CDs because they don’t guard against inflation. Instead, he recommends a mix of stocks and bonds for longer-term goals because they’ll provide better returns over time.
In my case, I’m not planning on locking up my money for longer than a year. There’s too much economic uncertainty, and I want to make sure I can access money for emergencies or specific projects when I need it.
