What is the best place for my short-term savings?

I have $300,000 in cash that I plan to put toward a new home. With the market the way it is, I’m holding off on buying for six to nine months. I am 66 years old, single and planning to retire in the next 12 months. What should I do with the cash until I buy?

-Judge

When it comes to determining where to house your short-term savings, factors to consider include risk, access, goals and what will give you peace of mind.

These factors will determine where you store your cash. And finally, understanding your unique needs and preferences, especially your goals, will bring calmness and clarity to your decision. You can use this tool to be matched with a financial advisor who may meet your needs.

How to rate short-term savings vehicles

There are several factors to consider when looking at short term funds.

Term and type. Short-term investments and savings should be easily converted to cash within three to 12 months (or less) without losing principal value. They can have the opportunity to make a small profit without risk.

Risk. You want the funds to preserve the principal value or to get a risk-free return.

Yes, there is an opportunity for short-term earnings through various investment opportunities. But if you have to take the risk for those gains, you can absorb the shock of the sudden loss. Given your short time horizon, it is best to avoid unnecessary risks.

Accession. Ease of access factors into your storage decision. Short-term events require liquidity and timeliness. It shouldn’t take more than a few days to liquidate and transfer cash to your goal. Agile access requires a flexible financial institution location.

Scope. Allocating a goal to your funds is an essential factor. A goal begins with a series of functional and emotional questions. These may include these:

• What are these funds for?

• What event, experience or expense am I preparing for?

• What positive outcome do I want to experience?

The answers to these questions will bring a sense of peace to your process and decision.

Consider pairing up with a financial advisor to talk about your own personal finance strategy with a fiduciary.

What are your options for short-term savings?

Banks and credit unions.

Banks and credit unions have several advantages. FDIC insurance covers $250,000 of bank deposits per person, per bank, per account. Depending on your account holding, you can have coverage of more than $250,000 at a bank.

Credit unions provide $250,000 per depositor through the National Credit Union Association. An overview and FDIC calculator are available here. An NCUA calculator is here.

The story continues

You can split deposit amounts across multiple institutions if your funds are too large to meet the FDIC insurance threshold at a single institution. This strategy, however, adds a layer of complexity to personal management.

Insurance isn’t the only benefit offered by banks and credit unions. Banks and credit unions provide liquidity and access.

Cash does not require liquidation. Cash is cash when held in a savings account, which provides the fastest form of access, liquidity and portability. Banks and credit unions tend to offer robust online platforms with electronic capabilities. Options brokerage will give the same.

Larger banks and credit unions offer multi-service platforms that enable customers to use their funds efficiently and access expertise in divisions such as mortgages, loans, brokerage, trusts and banking. If you think you’ll need any of these services in the short term, banks and credit unions may seem more appealing.

A potential downside is the low interest rates on your funds. However, several reputable and insured online banking platforms offer attractive interest rates on savings accounts.

Money Market Brokerage Mutual Fund Account. Your investment institution’s brokerage money market provides liquidity. Your cash is pooled with other savers’ cash in mutual funds that invest in short-term government securities that pay no-fee interest rates similar to savings accounts.

Money market brokerage accounts are not insured and are regulated by the Securities and Exchange Commission (SEC). Another general plus for brokerage money markets is their liquidity and access. Cash is available next day in your account and is easily electronically transferable to external accounts.

Brokerage exchange. The scholarship gives and takes. For the market to “deliver” gains, investors must “give” the market time. This is not the same as “chroming” the market. This refers to “time on the market”.

For short-term goals, the market may not be your best bet. The time horizon can quickly “move” through a market shock where the principal falls dramatically.

Comparatively, if the funds invested are for a long-term goal, there is time in the market for a principal amount to be recovered and compounded.

Treasury bonds I. Americans are facing inflationary times and feeling the higher prices in their carts, gas tanks, wallets and lifestyles. One advantage is Treasury I bonds, which adjust their interest rate payment to changes in the Consumer Price Index-Urban (CPI-U).

When the inflation rate is high, the interest rate on I Bonds reflects the growth and is attractive. The current rate is about 9.62%, much higher than any savings account rate at a bank, credit union or brokerage.

There are caveats. You must buy directly from the government at Treasurydirect.gov, you can buy up to $10,000 annually (an additional $5,000 allowance if you pay with a tax refund), and you must hold the bond for 12 months.

These limitations do not fit short-term goals that have a horizon of less than 12 months, are more significant than $10,000, and require liquidity and easy user access. I bonds are most useful when a person has $10,000 outside of an emergency fund, a short-term goal, and the time to spare to reduce the inflation interest paid.

A financial advisor can help you evaluate your options based on your goals.

What to do next

Consider your needs, then review the savings vehicles described above to determine which one best meets your criteria.

The bottom line is that your needs are primary preservation, low risk capacity and the ability to make a large purchase within 12 months. You also need liquid, accessible and transferable funds.

Your secondary goals are to earn interest and obtain insurance protection. You may consider an online bank or credit union outside of your primary institution if your funds exceed FDIC insurance limits.

Tips for growing and protecting your assets

• If you have questions specific to your investment and retirement situation, a financial advisor can help. Finding a qualified financial advisor doesn’t have to be difficult. The free SmartAsset tool matches you with up to three financial advisors serving your area, and you can interview advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your goals financial, start now.

• Keep an emergency fund handy in case you face unexpected expenses. An emergency fund should be liquid—in an account that isn’t exposed to significant fluctuations, such as the stock market. The trade-off is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.

• Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with prospects and provides marketing automation solutions so you can spend more time converting. Learn more about SmartAsset AMP.

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