The Money Envelope 2.0
By C.J. Prince
- PUBLISHED December 11
- 4 MINUTE READ
Personalized gifts are meaningful, but shopping for the perfect present isn’t always easy, which is why you’ll likely find at least a few presidential bills in your holiday cards this season.
The only trouble with cash? You may just spend it frivolously—without even remembering when or how.
But if you want to turn it into something memorable, that gift of green presents an opportunity to save over a longer period for something truly special or as a security fund for that rainy day. Even small amounts can put you on the path toward achieving your financial goals.
Here are some of the best vehicles for saving and growing your holiday harvest over time.
High Yield Savings Account
While interest rates for traditional savings accounts remain low, returning only fractions of pennies on the dollar, a high yield savings account, with current yields north of 2%, can give you a better bang for your buck. Check to be sure the account has no monthly fees or minimum balance requirement, so all of your money goes to work for you. Should you ever need quick access to your cash, your account should come with an ATM card you can use for point-of-sale purchases or at ATMs.
Money Market Account
Another way to make sure that your savings earn an above-average interest rate is by depositing them in a money market account. Several years ago, when interest rates were at all-time lows, money markets couldn’t offer an enticing enough yield to outshine checking accounts. But following a few Federal Reserve rate hikes, things have changed. As with a high yield savings account, you’ll get a debit card for easy ATM withdrawals, and, with a money market account, you’ll also be able to write a limited number of checks from the account.
If you need a little extra incentive to leave your cash alone, consider putting it in a certificate of deposit, or CD. This FDIC-insured savings vehicle offers rates typically higher than either high yield savings or money markets, but it also requires that you leave the money in for a longer, predetermined period of time. Term lengths can be as short as a few months to as long as a decade—although the standard options are usually between three months and five years. The longer the term length, the higher the interest rate you’ll earn.
If you don’t need the cash in the near future, consider making an investment for the long term by putting the money in an individual retirement account, or IRA. Even a small cash gift can snowball into a sizable nest egg with the right vehicle. A traditional IRA will grow your money tax-deferred until you begin withdrawing it at age 70½. Alternatively, you can choose a Roth IRA; you may pay tax on the initial gift, but then all growth will be earned tax-free so long as the funds remain in the account. In either case, there is no minimum requirement and you can begin saving any time.
Given the high cost of higher education, another useful, and targeted, savings vehicle is the 529 account, which, like a Roth IRA, allows you to earn tax-free interest on your principal as long as you use the funds for qualified educational expenses, such as college tuition, books, fees and even room and board if you go full-time. The federal government allows single individuals to contribute as much as $14,000 per year or $70,000 for five years to a 529.
Whether you receive holiday cheer via check, peer-to-peer financial apps, social networks or good old-fashioned cash in the envelope, that gift represents an opportunity to practice smart saving techniques that will pay dividends long into the future.
C.J. Prince is a freelance writer who covers finance, business strategy and leadership. Her work has been published in Working Mother, Entrepreneur and New Jersey Monthly, as well as many financial websites and magazines.
Got a money envelope? Consider a Synchrony Bank high yield savings account.