Life used to be much easier for savers.
Back at the beginning of 2007, around the time The Apprentice was gearing up for season 5 and about a year before the worst financial collapse in generations, you could earn a modest return on your cash.
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The average yield on a one year certificate of deposit, or CD, was 3.54 percent, per Bankrate, while inflation hovered at 2.1 percent. While not a killing, savers could at least count on their money to do a little work for them.
Today, of course, is different.
We've spent the past decade mired in a low-yield world, thanks to the Fed's herculean effort, including keeping interest rates near zero, to spark the economy. That's led the stock market to come roaring back to all-time highs, while cash returns get swallowed by already low inflation. A one-year CD will only net you 1.67 percent right now, which is slightly less than how quickly prices are rising.
If you want to maximize risk-free returns on your savings, you'll have to get a little creative.
What is an emergency fund, really?
The amount you need in emergency savings is pretty straight-forward: tally up your monthly expenses on things you need to live your life, such as rent and health insurance, and then save three-to-six times that amount.
(Admittedly that's easier said than done. Only two-in-five Americans would pay for an unexpected $500 expense out of savings, according to a Bankrate survey.)
Where that money should go, however, can be a bit more complicated.
Let's say that you have $15,000 in savings.
If you dump it all in a savings account, the national average is 0.25 percent, you'll have an extra $37.50 a year later, and that's without accounting for fees. Instead you should consider taking a more active approach.
The first thing is to change how you consider about your savings. Think in terms of time, rather than money.
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An emergency fund, after all, is nothing more than a hedge against disaster striking. You want to amass a stockpile of cash so that you don't have to go into debt should you get laid off, or your house needs a new roof.
But you don't need your entire emergency fund at once. You just need to be able to draw on it when the mortgage is due. Your $15,000 are chunks of time, and there's no reason your last chunk can't earn you a better return.
That means you can keep some of your emergency fund in a savings account, and put much of the rest to work.
Let's take that $15,000 again, and assume your expenses for one month total $2,500. (That will get you a shoebox in Brooklyn, so adjust the numbers to your circumstance.)
Rather than $15,000, then, you have two buckets of three months.
You should save the first three months in a high-yield savings account. You want to be able to get at your cash in case you need your money in a pinch.
Try to earn some yield with the next bucket. A three money CD by First Internet Bank, for instance, earns 1.06 percent. When it matures, reinvest.
As you increase your savings, look to longer-term CDs. While the money may be tied up for a year, say, you'll already have access to three months' worth of savings immediately, as well as another bucket that matures every three months.
This isn't a get rich scheme. The world is still the world, and rates will be on the low-end for the foreseeable future.
But there are positive side effects from engaging with your savings in such a hands-on manner, besides earning some extra yield. You remain committed to maintaining a much-needed hedge against disaster even as returns stay historically low.
In a time when Bitcoin can skyrocket out of seemingly nowhere, and some investors are ready to mortgage their future, it's important to stay grounded.
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