3 best places to save in 2023

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Make sure the money works for you.

Saving more money is a popular New Year’s resolution, but it’s not as easy as working a little more or finding expenses to cut from your budget. You have to decide.

The best place to store your savings can vary from person to person, but I have three suggestions for where to store your spare cash this year.

1. Emergency fund

Emergency funds should be everyone’s top priority if they don’t already have the funds. Even if you do, it’s a good idea to make sure it’s still good enough after all the inflation you’ve experienced in the past year.

Your emergency fund should include at least three months of living expenses. Six months is even more effective and some people prefer to save a year’s worth. If you lose your job, this might be worth it if you think it will take a long time to find one again.

It’s up to you which costs to include when calculating your emergency fund. You can focus on just the necessities like housing, utilities, and groceries. Or it can include additional features such as streaming services. But keep in mind that if you don’t include all of your monthly expenses, you may be forced to tighten your belt if an injury or job loss keeps you from working. Keep track of your savings goals with our emergency fund calculator.

2. High-yield savings account

A high-yield savings account is a great place for emergency funds or short- to medium-term financial goals you’re saving for. For example, money for a home or car down payment, or savings for a wedding or vacation, is best kept in a high-yield savings account.

These accounts keep financial information private and are not at risk of loss unless FDIC insurance limits are exceeded. This makes them more suitable for short-term savings than investment accounts where you can lose money.

High-yield savings accounts also offer interest. The interest rates aren’t as high as you’d get on an investment, but they’re significantly better than what you’d get with a brick-and-mortar bank account. Many traditional savings accounts only offer yields (APY) around 0.01% per annum. However, the top high yield savings accounts currently offer APY 3.50% and above. Depending on how much money you keep in your account, this could earn you tens or hundreds of dollars in interest per year.

3. Retirement account

If you don’t plan to spend the money anytime soon, a retirement account is an excellent home for your savings. You can invest your money to grow faster. This reduces the amount of money you personally need to set aside for retirement.

You can lose money, but over the long term, the stock market has historically delivered strong returns. Short-term losses are generally not a major concern when investing for retirement, as most workers still have decades to bounce back from retirement before they start spending their savings. .

Retirement accounts also offer tax benefits not found in taxable brokerage or savings accounts. Tax-deferred retirement accounts, such as 401(k)s and traditional IRAs, give you a tax deduction in the year you make your contributions, while Roth accounts allow tax-free withdrawals when you retire.

But before you put money in here, you should understand the rules that apply to your retirement account of choice, including annual contribution limits, eligibility requirements, and income limits. This will help you avoid expensive fines when taxing.

You can also split your money between some of the options above. Think about what works best for you, then check in with yourself every month or so to see how your savings strategy is working. Please switch as needed.