Liquid Investing Tips
Read these 7 Liquid Investing Tips tips to make your life smarter, better, faster and wiser. Each tip is approved by our Editors and created by expert writers so great we call them Gurus. LifeTips is the place to go when you need to know about Investing tips and hundreds of other topics.
Finding the Best Interest Rate
Look farther than your local bank or credit union to find the best interest rate on your liquid investments. With the Internet, investing with distant banks or online banks is as convenient as investing with a local brick-and-mortar bank. Research on the Internet to find the latest information about the best interest rates offered at banks throughout the country. Compare these rates to those at your local bank or credit union to find a convenient way to make the most of your liquid investments.
Don't Save in a Savings Account
Next to a dirty sock under your mattress, traditional savings accounts offered by banks and credit unions are the worst place to save your money. Interest rates on savings accounts don't keep up with inflation, so by putting your money in a savings account you're actually losing purchasing power over time. Instead of a traditional savings account, look into money marking investing, CD investing, and online banks to deposit money that you'll need in the near future. Check around to find something that is liquid enough for your needs, but that offers an interest rate that will let you compete with (or beat) inflation.
Laddering CD investments
Ladder your CD investments to take advantage of rising interest rates. To ladder your CD investments, choose several different CDs with different term periods and divide your money among them. If you have $2000 to invest, you can put $500 each in 2-year, 18-month, 1-year and 6-month CDs. After 6 months, take the 6-month CD investment with its interest and purchase another 2-year CD. Whenever a CD term is up, put it into another 2-year CD. This way, you'll always have a little money to invest in higher-interest earning CDs.
Join a Credit Union
Credit unions offer the same essential services as banks, but generally charge fewer fees and offer higher interest rates. Credit unions require that you belong to an affiliated group in order to become a member. To find a credit union that you're eligible to join, look first to your employer. Many larger companies offer credit union membership to their employees. If you work for a smaller company or are self-employed, find out if you can join a credit union through your alumni association, religious organization, or through a relative who is a member of a credit union.
CD Investing
Invest in a Certificate of Deposit (CD) when you have money that you anticipate using in the near future, but not immediately. CDs are available for periods as short as 3 months and as long as 10 years, and require at least $500 to open. They always pay a better interest rate than a savings or checking account, but you'll be charged early withdrawal fees if you want access to your money before the term of the CD is up. In general, the longer term you choose for your CD, the better interest rate you'll get. However, there are disadvantages to choosing the longest term CD available. Besides not having access to your money until the term is up, you could lose out on better interest rates available in the near future. If you invest in a 5 year CD and interest rates jump three percentage points during that time, you won't be able to move your money to a higher paying CD until the term is up.
How To Build an Emergency Account
If you can't build up an emergency account because you don't have any money left over at the end of the month, track your expenses for two weeks. Two weeks should be long enough to get a general feel of your normal expenses. Take a look at your purchases and determine which ones you could do without. Try to shave off at least ten percent of your income to stash away in an emergency fund. Eat out less or eat less expensive food at home. Buy used instead of new. Find hobbies that you can do for free. Ask for a raise. Although it may seem like an inconvenience now, every dollar you save in an emergency account could benefit you many times its face value if you're able to avoid putting money on high-interest credit cards or taking out expensive loans when you're strapped for cash.
Liquid Investing
Invest your money with varying levels of liquidity. Liquidity refers to the ease with which you are able to access your money. A 401(k) that you can't access until you are 59 ½ years old without a stiff penalty has very low liquidity. A checking account that pays interest has high liquidity because you can access those funds any time you write a check or use your ATM card. In most cases, the higher the liquidity, the lower the interest rate you'll earn on that investment. To free up money for more profitable investments, only keep as much money in liquid investments as you anticipate needing in the short term. Because of its extremely low interest rate, your checking account should ideally never have more money in it than you will need to pay for two months of expenses. An emergency account can be held in a slightly less liquid money market account. Choose less liquid, higher interest-paying investments for your other savings.
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