Where to put your savings

The place to keep your savings is not in a sock in your dresser. For one thing, socks don’t pay interest. Socks don’t give you free overdraft protection and lower fees on your checking accounts. And socks have lousy security safeguards. It’s time to get to know what your bank has to offer — and you’ll find you have quite a few choices. The key is picking the right options for your savings goals.

There are two things to think about when you decide where to keep your savings: liquidity and return. Liquidity is how easy it will be for you to access your money in a hurry, if you need to, without losing any value. Some financial vehicles are much more liquid than others. Your typical savings account lets you deposit and withdraw money any time you like. In other words, it’s very liquid. In contrast, if you put all your money into real estate, it could take you months to find a buyer willing to pay the price you’re asking — making real estate a relatively illiquid investment.

Your return is the money you make on your deposit. There’s generally a trade-off between liquidity and potential return. To have the opportunity to earn more money on your deposit, you usually have to give up some access to it. For example, a certificate of deposit (CD) may pay a higher interest (if you leave your money on deposit for a specified minimum period of time) than a regular savings account, which lets you withdraw your cash whenever you like.