I created a ‘do not spend for 2 years’ fund, and financial experts shared 5 places to keep it to earn the most interest
[Business Insider]
- I created a “do not spend for two years” fund — money that I want to use down the road to start a new business venture or pay for my honeymoon.
- In the meantime, I want to earn the most interest possible, so I got some advice from financial experts.
- They recommended a CD, a high-yield savings account, bond ETFs, a fixed annuity, or a money market mutual fund.
I’ve spent the last few years rescuing my finances. In my 20s, I made every money mistake possible, from overusing credit cards to keeping my money in a savings account with practically no interest. I didn’t have a retirement plan, and the idea of an emergency fund didn’t cross my mind. But all of that changed as I entered my 30s a few years ago, and since then I’ve been working overtime to fix old mistakes and strategize for the future.
I’ve set strict budgets, moved my money into high-yield savings accounts, and created both retirement and emergency funds. Recently, after feeling more in control of my finances, I decided I wanted to take a few thousand dollars out of my general savings account and place it somewhere I called my “do not spend for two years” fund. My goal was to maximize interest on that cash and then use that money for a big project or life event (for example, to start a new business or fund a honeymoon).
Unsure of where to put that money to ensure maximum growth, I reached out to financial advisors. Here are the five places they recommended I put that money to get the best interest over the course of two years.
Certificate of deposit
“With a certificate of deposit, you basically deposit your money for a specific duration. No matter what happens to the interest rates during that time frame, you will get a guaranteed return,” said Nabity. “Ensure that you buy your certificate of deposits with an FDIC-insured financial institution, that way it will guarantee that up to $250,000 is insured. The longer the term of investment, generally it ranges anywhere between three months to five years, the higher the yield will usually be.”
One idea that I always forget about is putting money into a longer-term CD. I have a chunk of money in a six-month CD now (which means I have to leave the money inside that CD for six months to earn a 0.65% APY). But Justin Nabity, a financial planner, said that putting the cash in a two-year CD could be a good idea because of the guaranteed return.
The best CD rates for October 2020
Best rates for a 1-year term
| CD account | APY | Minimum deposit |
| Marcus High-Yield CD | 0.65% | $500 |
| Ally High Yiel0d CD | 0.65% | $0 |
| Discover CD | 0.60% | $2,500 |
| Synchrony Bank CD | 0.60% | $2,000 |
| Simple No-Pen0alty CD | 0.50% | $250 |
Best rates for a 2-year term
| CD account | APY | Minimum deposit |
| Marcus High-Yield CD | 0.65% | $500 |
| Ally Raise Your Rate CpD | 0.70% | $0 |
| Discover CD | 0.65% | $2,500 |
| Synchrony Bank CD | 0.70% | $2,000 |
Best rates for a 3-year term
| CD account | APY | Minimum deposit |
| Discover CD | 0.70% | $2,500 |
| Synchrony Bank CD | 0.75% | $2,000 |
| Ally High Yield CD | 0.75% | $0 |
| TIAA Basic CD | 0.65% | $1,000 |
| Marcus High-Yield CD | 0.65% | $500 |
Best rates for a 4-year term
| CD account | APY | Minimum deposit |
| TIAA Basic CD | 0.70% | $1,000 |
| Discover CD | 0.70% | $2,500 |
| Synchrony Bank CD | 0.75% | $2,000 |
| Ally Raise Your Rate CD | 0.70% | $0 |
| Marcus High-Yield CD | 0.65% | $500 |
Best rates for a 5-year term
| CD account | APY | Minimum deposit |
| Ally High Yield CD | 1.00% | $0 |
| Synchrony Bank CD | 0.90% | $2,000 |
| Discover CD | 0.80% | $2,500 |
| TIAA Basic CD | 0.75% | $1,000 |
Best rates for a no-penalty CD
| CD account | APY | Minimum deposit |
| Ally No Penalty CD | 0.60% | $0 |
| Marcus by Goldman Sachs No-Penalty CD | 0.35% to 0.55% | $500 |
| Simple No-Penalty CD | 0.50% | $250 |
| Citizens Access Liquid CD | 0.50% | $5,000 |
Best rates for no opening deposit
| CD account | APY | Minimum deposit |
| Ally High Yield Certificate of Deposit | 0.20% to 1.00% | $0 |
| Capital One 360 Certificate of Deposit® | 0.20% to 0.40% | $0 |
| American Express Certificate of Deposit | 0.10% to 0.55% | $0 |
| Barclays Online CD | 0.10% to 0.30% | $0 |
CD rates at the largest US banks
| Bank | APY | Next steps |
| Citibank | 0.05% to 0.25% | Learn more |
| Capital One | 0.20% to 0.40% | Learn more |
| PNC Bank | 0.01% to 0.10% | Learn more |
| TD Bank | 0.05% to 0.10% | Learn more |
| Bank of America | 0.03% to 0.06% | Learn more |
| Chase Bank | 0.01% to 0.05% | Learn more |
| US Bank | 0.05% to 0.35% | Learn more |
| Charles Schwab Bank | 0.10% to 0.20% | Learn more |
| Wells Fargo | 0.01% to 0.05% | Learn more |
| BB&T Bank | 0.01% to 0.05% | Learn more |
High-yield savings account
An important decision I had to make about my money was how much risk I was willing to take with it. Alan Schoenberger, a financial planner, suggested keeping the cash in my current high-yield savings account or another one with higher interest, especially if I’m not looking to take on too much risk.
The best online high-yield savings accounts of October 2020
| Bank | APY | Minimum deposit | Next Steps |
| 0.60% APY | $0 | Learn More | |
| 0.60% APY | $0 | Learn More | |
| 0.60% APY | $0 | Learn More | |
| 0.50% APY | $0 | Learn More | |
| 0.81% APY | $0 | Learn More | |
| 0.31% to 0.55% APY | $100 | Learn More | |
| 0.76% APY | $100 | Learn More | |
| 0.60% APY | $0 | Learn More | |
| 1.00% APY | $0 | Learn More |
*As of October 2020, the national average APY on savings accounts is 0.05% according to the FDIC.
Savings rates for the largest US banks
| Bank | APY | Next Steps |
| Citibank | 0.04% – 0.70% | Learn More |
| Capital One | 0.50% | Learn More |
| PNC Bank | 0.01% – 0.80% | Learn More |
| TD Bank | 0.01% – 0.35% | Learn More |
| Bank of America | 0.01% – 0.05% | Learn More |
| Chase Bank | 0.01% – 0.05% | Learn More |
| U.S. Bank | 0.01% | Learn More |
| Charles Schwab Bank | 0.05% | Learn More |
| Wells Fargo | 0.01% – 0.02% | Learn More |
| BB&T | 0.01% | Learn More |
“A high-yield savings account works similar to a regular savings account but pays a higher rate. Currently, they are paying around 0.60 to 0.70% interest, and these accounts usually do not have high minimum balances,” said Schoenberger. “While neither option (CD or HYSA) pays a very high interest rate, there really are no better options without taking on additional and unnecessary risk. In both cases, your principal is never at risk. So if an emergency came up and you needed the money right away, you could have access to it. In the case of the CD, you might forfeit a large chunk of the interest, but you will always get your principal back.”
Fixed annuities
An option I didn’t know much about and never considered before was annuities, suggested to me by Jason Field, a financial advisor at Van Leeuwen & Company.
A fixed annuity is a type of insurance contract that promises to pay out a specific guaranteed interest rate on a person’s contribution to that account. Fixed annuities work much like CDs, except the earnings grow tax-free until withdrawals are taken.
“Fixed annuities have become more popular as interest rates have come down. In general, fixed annuities pay slightly more than CDs, but you are giving up liquidity,” said Field.
Field said most fixed annuities have surrender periods from three to seven years, but there are some carriers that will offer two-year surrender periods.
“This means your money would grow for two years, then you are able to take the full amount out,” says Field.
This option is more commonly used in retirement planning, and in fact it didn’t seem like keeping the cash in there for two years would be as worthwhile as other options (since I wouldn’t be able to access without a huge penalty if I needed it) and might be a better option to consider for long-term investment planning (say a fixed annuity with a term of 20 years).
Low-cost bond ETFs
I also wanted to explore an option that did come with some risk, just to see what it would entail. That’s when John Caserta, a chartered financial consultant, recommended a low-cost bond exchange-traded fund.
Said Caserta, “[Low-cost bond ETFs] can provide yield while keeping risk and cost relatively low in comparison to stock-based mutual funds. But remember that yield is driven by credit quality — the lower the credit quality of a bond, the greater the risk of default, and consequently the higher the yield. You’ll want to make sure that the fund has bonds that are investment-grade or better to minimize your risk.”
Money market mutual fund
Finally, I decided to explore an option that could generate the highest return with the most risk. Riley Hale, an accredited financial counselor, spoke to me about money market mutual funds, and shared the pros and cons associated with this option
“Money market mutual funds invest in a variety of short-term, safe investments, resulting in a good return with much less risk than the normal stock market,” said Hale. “This wouldn’t be the first option to consider since it is not FDIC insured and could still accrue losses over two years.”
After receiving all of this advice, I decided that while I did want to get a high return on the money, I didn’t want to take on any risk or added stress. I decided my best route would be to put the cash in a CD, so I could lock in a decent interest rate, no matter what.