Besides a Savings Account, Where Is the Safest Place to Keep My Money?

Savings accounts are a safe place to keep your money because all deposits made by consumers are guaranteed by the Federal Deposit Insurance Corporation (FDIC) for bank accounts or the National Credit Union Administration (NCUA) for credit union accounts. Deposit insurance covers $250,000 per depositor, per institution, and per account ownership category. As a result, most people don't have to worry about losing their deposits if their bank or credit union becomes insolvent. If you've come into some extra money through an inheritance, a bonus at work, or made a profit selling your house, perhaps you are considering other safe options for stashing your cash, in addition to a savings account.

Safe Places to Save Your Money

Both certificates of deposit (CDs) and U.S. government securities are relatively safe places to invest your money. Both of these options will offer you some return on your money, but if your first priority is keeping your money safe, you'll likely want to prioritize a high degree of liquidity and relatively low fees above high returns.

Certificate of Deposit (CD)

Certificates of deposit (CDs) issued by banks and credit unions also carry deposit insurance. The main difference between a savings account and a CD is that a CD requires you to lock up your investment for a specified period of time, from several months to several years. CDs pay a slightly higher interest rate than savings accounts. Under typical market conditions, CDs with longer maturities pay interest at higher rates than CDs with shorter maturities. The catch is that if you want access to your money before the CD matures, you'll pay a penalty. The penalty varies depending on the issuing institution's policies but it is typically several months' worth of interest.

One strategy to further grow your earnings is called CD laddering. With CD laddering, a person may choose to open several CDs with different maturities. This strategy may offer you greater flexibility and less risk than opening one CD (with one maturity date). Having both short- and long-term CDs can also allow you to take advantage of higher interest rates without also taking on too much risk (while also having the flexibility of taking advantage of higher rates in the future).

U.S. Government Securities

The federal government offers three categories of fixed-income securities to consumers and investors. U.S. government securities–such as Treasury notes, bills, and bonds–have historically been considered extremely safe because the U.S. government has never defaulted on its debt. Like CDs, Treasury securities typically pay interest at higher rates than savings accounts do, although it depends on the security's duration.

U.S. Treasury Bills

U.S. Treasury bills, also referred to as T-bills, are federal, short-term debt obligations with a maturity of one year or less. The longer the maturity, the more interest the investor earns. Investors can purchase T-bills through the secondary market in a variety of different ways, such as through a broker or investment bank, or at auction on the TreasuryDirect website.

U.S. Treasury Bonds

U.S. Treasury bonds, also referred to as T-bonds, take the longest to mature of the three types of government-issued securities. They also pay the highest interest rates of the three types of government securities. They are offered to investors in a term of 20 or 30 years to maturity.

Investors can purchase T-bonds at monthly online auctions held directly by the U.S. Treasury; they are sold in multiples of $100. Purchasers of T-bonds receive a fixed-interest payment every six months.

U.S. Treasury Notes

U.S. Treasury notes, also referred to as T-notes, are similar to T-bonds. The difference is that T-notes are offered in a wide range of terms (from two years to no longer than 10 years). While T-notes do not generate as high of a yield as T-bonds, they also generate a payment for investors twice a year (or every six months).

For all U.S. government securities, if you sell a security before it matures, you'll lose money, so it's important for investors to consider their investing timelines carefully before buying.