By Nick Dauk, CBS MoneyWatch, featuring Nick Strain, CFP®, CPWA®, AIF®, Senior Wealth Advisor
Higher-rates on short-term CDs, prolonged periods of high-yield savings account interest rates and other increases in a high-rate environment have offered savers multiple options for maximizing their returns recently.
However, today’s advantageous rates may decrease later in September if the Federal Reserve follows through with anticipated interest rate cuts. Typically, when the Federal Reserve increases or decreases rates, other financial institutions follow suit.
As the economy prepares for yet another shift, we spoke to three financial experts who’ve identified four ways you can make the most of your savings to support your future goals.
4 smart savings moves to make this September
Depending on your financial situation, one or more of these savings strategies can help you maximize your returns:
Keep funds liquid for homebuying
With the anticipated Federal Reserve rate cuts in September, mortgage interest rates may drop again. Many prospective homebuyers will take advantage of these rates. Others, however, cannot immediately afford a mortgage with current home prices.
Nick Strain, a senior wealth advisor at Halbert Hargrove, recommends that future homebuyers keep their funds liquid, yet growing, with a high-yield savings account or a high-yield money market account instead of CDs.
“I suggest this strategy instead of buying 3- or 6-month CDs or Treasuries,” he says. “Currently, an investor typically won’t earn much more in these accounts than in a high-yield savings account.”
Alternatively, another option for prospective homebuyers who want to increase their opportunities for long term savings without tying up all of their funds is to split your funds between a CD and a high-yield savings account.
Maximize 401(k), IRA and Roth IRA contributions
One challenge adults may face when planning for their financial future is identifying how to make the most of their limited income. Thankfully, even small amounts of money can work in your favor over time.
“Maximizing contributions should be your first step,” says Vanessa N. Martinez, CEO and managing partner of Expressive Wealth, who suggests contributing to your 401(k) plan initially, before contributing to your IRA or Roth IRA.
“Not all retirement savings needs to be in a retirement account; building a brokerage account where you can set up automatic deposits to dollar cost average into the market is a great idea,” she says.
Invest in savings options for young children
As more parents support their older children as they endure economic hardship, parents of younger children may be curious about the most effective way to save for their child’s future. Martinez mentions that there are multiple ways to grow a young child’s savings account. The three that her clients tend to choose are:
- 529 plans: These are savings accounts intended for future education costs.
- Roth IRAs: These are individual retirement account in which you pay taxes on contributions.
- Gift trusts: These are trusts designed to transfer wealth between generations while reducing the need to pay tax on amounts or values that exceed the annual gift tax exclusion.
