In a rate-changing environment with persistently high prices, where you store your cash could be the difference between growing your wealth or eroding your purchasing power — to the tune of hundreds of dollars.
This is especially true if you're carrying a larger balance like $50,000. Thankfully, there are smart places to park it and earn a healthy APY while investigating other options.
Since there are no one-size-fits-all solutions, here are several common scenarios and strategies for each.
Scenario 1: I want to keep liquidity as I investigate all options
In this case, the smart bet is to open a high-yield savings account at an online bank. Online banks offer higher APYs with minimal account fees, and you can separate this $50,000 from the rest of your cash. This can be critical if you've never been in this situation.
You can find and compare some of the best high-yield savings accounts using this Bankrate tool:
Another reason high-yield savings accounts are useful is that they offer variable interest rates. This is essential right now, as the Federal Reserve will likely issue another rate hike in December, unless there's an end to the Iranian War.
CME FedWatch projects there's a high likelihood the Fed will issue a quarter-point rate hike at its December meeting. When the Fed hikes rates, it can raise the APYs on your savings account, helping you to earn more.
Of course, if you're not concerned with liquidity, better options are available.
Scenario 2: I want to earn now, without tying up money for years
$50,000 is a sweet spot because it can unlock a CD option that earns excellent rates right now: A jumbo CD. The best jumbo CD rates offer you APYs up to 4.60%, well surpassing the best high-yield savings accounts.
To demonstrate, if you were to take your $50,000 and open a one-year jumbo CD with Finworth at 4.35% APY, you'll earn $2,175.
But before you jump at this opportunity, keep these things in mind:
- Interest: Interest earned on a CD is taxed as ordinary income, so make sure to factor this in as part of your plan.
- Early withdrawal: If you need to break open your jumbo CD, you could lose months of interest. This could easily be hundreds of dollars, so only take this approach if you're confident you won't need the cash for a year.
- Maturity: Some banks will automatically renew your CD. Set a reminder on your phone a few weeks before it matures so you can explore other options.
If you don't want to put all of your eggs in one basket, here's a smart alternative.
Scenario 3: I want a mix of short- and long-term solutions
This is where a CD ladder could come in handy. With it, you don't place your $50,000 into one CD. Instead, you spread it across multiple CDs with varying maturities.
Here's an example of how this could work:
Bank | CD Type | Deposit | APY |
6-month CD | $10,000 | 4.25% | |
1-year CD | $10,000 | 4.50% | |
3-year CD | $10,000 | 4.60% | |
5-year CD | $20,000 | 4.75% |
This approach lets you use short-term and long-term CDs. You'll have quick cash flow from some of your funds, allowing you to pivot in response to rising inflation. If the Fed hikes rates again, you'll also be better positioned to capitalize on higher APYs.
You'll also have some money earning a much higher rate than a HYSA. This gives you peace of mind that you're maximizing your cash without taking on risk.
You can use this Bankrate tool to find the CD terms that work for you and build your own ladder:
Balancing different strategies
Of course, if you don't need some of the money for years and don't mind risk, a smart play is to invest it in the stock market. Adding index funds tracking broad markets, such as the S&P 500, provides instant diversification and historically higher growth.
Here's a look at how you can balance savings with investing:
- High-yield savings account ($10,000 or 20%): It keeps emergency funds available with competitive yields.
- CDs ($15,000 or 30%): Lock in guaranteed fixed returns for short- to medium-term cash needs without risk of capital loss.
- Stock index funds ($25,000 / 50%): Helps you achieve long-term growth and capital appreciation to protect your purchasing power against inflation over a 5-to-10+ year time frame.
Ultimately, if you're looking for smart places to park $50,000 away from market volatility, you have options. The smartest approach is to devote some of your money to short-term CDs so you can earn more than a high-yield savings account, while also allocating some to index funds, where you could earn substantially more.
With an uncertain rate environment and higher inflation, these solutions help you reach your savings goals while shielding your purchasing power from future inflation.