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What is high risk investing?
an emergency fund is reserved for emergency situations. Once the cash equivalents you have set aside have ballooned up beyond the amount needed for an emergency fund, the excess becomes stagnant money that loses value to inflation. Not investing the excess is the riskiest action you can take since it guarantees a loss.
THIS.
You can't keep up with inflation with the interest you'll earn from a bank. You absolutely NEED to be investing. That can include mutal funds (very safe, long term option) or real estate. The best advice you will hear on these forums is this -- YOU need to educate yourself. Buy a couple books. Meet with an accountant. LEARN. Then you can see how CD's and saving accounts will not come close to helping you. You need compound interest to work in your favor.
I wish you the best of luck.
This is probably not the place to get into an extended discussion of investing.
The only additional thing I'd say is that when comparing a 1% savings account against some other investment that seems to pay a lot more, you need to look at the "risk adjusted return", rather than the absolute return.
There's a lot of information available on this subject via a Google search.
I-bonds are probably your best bet. They pay the rate of inflation plus 0.1%. The plus amount is fixed at the time you buy the i-bond. Here is a link describing how interest is calculated:
https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_itaxconsider.htm
The interest is tax free for state taxes. It is taxable for federal, but you can defer federal taxes until you withdraw the money.
The cons are:
1) Max purchase 10k per year (plus 5k if you use your tax refund)
2) Can't withdraw the money for the first year. If you withdraw in the first 5 years, you loose 3 months interest. After the first year it just takes a couple of days to redeem the bond and have it deposited back into your back acount.
3) Max term of 30 years. Max of 30 years may sound like a long time, but if you are in your 20's and don't cash out for 30 years, you may be forced to cash out during your peak earning years. Not a concern if you are in your 40's and will be retired in 30 years.
I-Bonds may be great for saving for a house down payment or emergency fund. But there is also a place for investing in the stock market once you have fully funded your emergency fund. Over the long term the stock market will beat i-bonds..
Hey thanks for the thoughts everyone. I'm going to look into these I bonds.
To be honest, you should sit down with an advisor to discuss. There is no way to make an educated recommendation on here that isn't completely a shot in the dark without sitting down and doing a full financial review and finding out more about your current investments, your employment, family, and plans for the next 5-10 years.
EDIT: I can't emphasize enough that none of us are qualified to make recommendations on here without more information.
I don't have any magic answers for you. But a few thoughts.
I-Bonds do not go up with interest rates. They are pegged to inflation. Interest rates may or may not go up next year. Inflation may or may not go up next year. Typically, the Fed boosts short term interest rates to combat high inflation. Also, note short term interest rates do not necessarily correlate with long term interest rates.
US Saving bonds (I & EE) have some tax advantages over bank CDs. If you pay state income tax, US saving bonds are not taxed by your state. Plus you get tax deferment with the US Saving bonds for federal taxes. Be sure to reduce the interest rate of any bank CDs when you compare the two.
Rather than buying one 5 year CD, you can create a CD ladder with 5 year CDs. It helps protect you when interest rates go up. Google for how to create a CD ladder for details. If you do create a CD ladder, be aware that the best rates may be available at a different bank/CU each year. You might end up with CDs at 5 different CUs. That can be a hassle. Plus there is always the hassle if the bank you have a CD with goes under. The Fed can't go bankrupt.
I don't want to preach on the point, but once your emergency fund is sufficient, you should probably start thinking about investing in stocks/bond mutual funds. I would recommend the Bogglehead's 3 fund portfolio when you are ready to start. Again google for details. Boggleheads may also be a good resource for deciding between i-bonds and CDs.
For full disclosure, I do not currently own any i-bonds or CDs. I am currently using muni-bonds for the portion of my emergency fund above what I what to keep in cash equiv's. Over the long term I expect they will keep pace with / slightly out perform inflation, but there will be some volatility. I live in a state without a state income tax. Therefore, muni-bonds are tax free for me. However, I will likely start buying I-Bonds this year with the goal of using them for an income floor in 30 years when I retire. I may also buy some small CDs from one of my FCU's to help build a relationship with them.