Should I invest my savings to earn more interest?

We’re currently living in a period of low interest rates and the paltry returns received on savings accounts, CDs, and money markets are causing people to look for different ways to achieve higher returns. In investing circles, some call it “chasing yield”. We all want our money to work as hard as possible for us, and the higher the yield, or interest rate, the harder the money is working. However, the answer to the question depends on what and when the money will be used.

Everyone should have a certain amount of savings to cover a rainy day. Many experts recommend 3-6 months of living expenses. That money should be kept in an account that could be accessed immediately. Bank accounts and money market accounts are the most liquid. While you will want the account with the highest interest rate, the primary purpose of this account is safety and liquidity, not yield. So don’t go down the investing path just yet. For this money, I strongly recommend CIT Bank, an online bank that has a sound history and pays good rates of interest.

Beyond your rainy day fund you may have savings for long-term goals. For money to be used in 5+ years you can comfortably take a portion and invest in stocks, bonds and mutual funds. These investments can and do lose money but usually over a longer time horizon their returns far outpace interest on bank accounts.

Lastly, take stock of your debt situation. Can some of your savings be used to pay down debt? Money is working much harder paying down a 5% car loan that sitting in a bank account at less than 1%.

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