Even with interest rates on short-term deposits close to 0%, there are still safe and secure ways to invest that can earn you more interest. Whether you’re a CEO of a Fortune 500 Company or a recent college graduate, it’s imperative to make sure that you’re planning for your future.

Where to start
Here’s what we recommend: Start with an emergency fund. Take a look at your family’s living expenses (what you absolutely need to survive - mortgage payment, insurance, taxes, groceries, gas). Save enough money to cover your family for 3-6 months in the event of an emergency. For example: If your family requires $3,000 to live for one month, you’ll want to save $9,000-$18,000 as a base. You want to make sure the money is protected and will be available in the event of an emergency. Keeping the funds in an interest-bearing savings account or short-term certificates will earn you some interest, while maintaining security and providing liquidity (i.e. access to the funds).

Certificate Laddering
This strategy works great for your emergency fund. Certificates typically have a higher rate of return than basic savings accounts, and they’re more liquid than long-term bonds. Thus you might consider Certificate Laddering. Break up your savings into quarters. Invest the first quarter of money in a savings account. Put the second quarter into a 1 year Certificate, the third quarter into a 2 year Certificate, and the fourth quarter into a 3 year Certificate. Let’s say you saved $10,000. $2,500 goes into a savings account. Another $2,500 each goes into a 1 year Certificate goes into a 1, 2 and 3 year Certificates. By laddering the Certificates, you have staggering maturity dates. You won’t tie up all your funds, and you preserve liquidity since you can dig into your savings account first if needed. In the event that you need more than your savings account, you can break your 1 year Certificate, but you still have your 2 and 3 year Certificates in place. The ultimate idea is that you re-invest the Certificates as they mature. When your 1 year Certificate expires, re-invest it into a 3 year Certificate.

But that's not all...
Certificates are just one way that you can save. You can also invest your money in Interest Bearing Checking Accounts. Blending these savings vehicles can maximize one’s rate of return and keep assets liquid for short-term needs. Although the low rate environment limits current yield on these vehicles, the safety and liquidity features are invaluable for your emergency reserves. Once you have your cash safety net set aside, there are countless options available for the excess reserves - including other options like IRAs, Market-Linked CDs, and putting together a portfolio of mutual funds.

IRAs
An Individual Retirement Account offers the opportunity to contribute excess cash to a tax deferred vehicle. By contributing your funds to an IRA you will be setting aside money that can be used in retirement and may be eligible for some tax breaks along the way. Just keep in mind that any withdrawals prior to age 59 ½ may be subject to taxes and early withdrawal penalties.

Stocks, Bonds
Investing in financial securities like stocks and bonds provides opportunities for returns above current interest rates. By working with a financial advisor who understands your personal situation, you may be able to achieve a customized investment mix that is appropriate for your needs.

Market-Linked CDs
If you’re looking for other options, you could look into Market-Linked CDs. They’re connected to a market index, like the S&P 500, which means that there’s no fixed rate of return. When the deposit matures, there will be a fluctuation on that index. For example, if there is a positive increase of 10% over the life of the CD, then you benefit that 10%. If it goes down, you’re protected. That way, you get market-like returns without the hassle or risk of investing in the stock market. The downside to these is that they’re not liquid, meaning you have to wait until they’ve matured (usually 4 years or longer) to access the money. Otherwise, you’re subject to penalties and potential losses.

Still have questions?
If you have questions or are interested in discussing this topic more, contact me at Elfcu Wealth Management: (317) 524-5008 or sbrennan@elfcu.org. I'd love to help.

Stephen Brennan is a Financial Advisor at Elfcu, where he has worked since 2009. In his role, he works with members on all aspects of financial planning - from cash flow and balance sheets to investments and retirement planning. He enjoys getting to know his clients and understanding their personal goals so that he can help make their dreams come true. He and his wife (and dog) live in downtown Indianapolis