I spend a bunch of time thinking and reading about personal finance and investing. One of the things that recently crossed my mind are options available to savers regarding short-term savings. Depending upon your financial goals, there are a number of products that can help you with your short-term savings. Other products on the other hand don’t warrant any attention, at least from us. For today’s post here are the options we gravitate to; why we prefer these short-term savings options and the reasons we avoid others.
Option # 1 – Chequing account
We use our chequing account for everyday expenses and above a certain threshold, we move any money saved to a savings account.
- Low risk
- We keep as much money in the chequing account as we want
- Easy access, get money out whenever we wish
- Helps with our weekly budgeting process
- Pays a crappy interest-rate
Option # 2 – Savings account / high-interest savings account
Beyond funds in our chequing account we move any money saved to a savings account. We don’t distinguish between a “savings account” and a “high-interest savings account” here, the latter is an oxymoron with today’s interest rates I think.
- Low risk
- Pays a slightly higher interest-rate
- We keep as much money in the savings account as we want; good for emergency funds
- Still pays a low interest-rate; bad for long-term investing.
As you can see above our savings plan is pretty simple but we like it that way. Basically everything beyond a chequing and savings account is invested for the long-term (10+ years) across various accounts.
We don’t invest in Guaranteed Investment Certificates (GICs). These securities can lock our money up for 6 months (or more), the interest rate on these products is low now, and we would need to pay a penalty to get at the funds – that doesn’t work for us.
We’ve never invested in Canada Savings Bonds. These bonds pay an interest rate similar to GICs.
Money market mutual funds also don’t have any home in our portfolio. Same goes for government bonds and corporate bonds although I used to invest in bond ETFs at one point. I suppose if we were closer to retirement age we would have more fixed-income across our portfolio but certainly not now during our prime asset accumulation years.
What short-term savings options work for you?