When you decide where to put your savings, interest rates are the main factor to consider.
High -income savings accounts (Hysas) are a popular choice for many savings because they are easy to find and have higher prices than most savings accounts. However, Hysa is not always the right place to save mid and long -term savings.
Although bonds are less popular – only about 7.5% of US households invest in them, they can help your savings grow faster than Hysas under certain market conditions. In addition, they are provided with a guaranteed return.
Here, take a closer look at the bonds compared to the high -cost savings accounts and which option may be better for you.
The bond is essentially a loan that you grant to the Government or other entity in exchange for a set return rate. Bond conditions can range from four to 30 years, depending on the type, and interest is usually paid every six months.
Don’t want to wait for a year or decades to get your money? You can sell your bond until it reaches maturity, and you can even increase your return by doing so; If interest rates and inflation decrease, your bond rate is likely to increase.
If you have a pension account, some of your money can already be invested in bonds, but you can also invest in a few other ways:
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Treasury bonds: Published by the Federal Government through the Treasury, directly indicating $ 25 to $ 10,000.
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Municipal bonds: Available through state and local authorities.
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Corporate bonds: You can purchase through private businesses or intermediaries with built -in commissions or “mark -ups”. Denominations usually start at $ 5,000.
Read more: Types of US Savings Bonds and how they work
High -income savings accounts are just like regular savings accounts, but they pay higher than average interest rates. Although the average rate of savings is currently 0.38%, Hysas can be found over 4%.
Hysas can be purchased through many banks and credit unions, and some have no monthly care fees or minimum deposits. However, online banks are usually the best places to look for Hysas, as their low value costs allow them to pay more return on your deposits.
High -income saving accounts and bonds are good means to protect your savings and earn some interest on your cash, as there is almost no risk of losing your main amount. But similarities stop.
With Hysas, you can bring and withdraw your money whenever you want, without worrying about fines. However, due to bonds, premature purification can cause loss (or profits), depending on how the bond market works. You can also lose money for corporate bonds if the company issuing a non -fulfillment of bonds.
When it comes to growing your wealth than Hysas or bonds, they will not have a major impact as they rarely receive more than 2% to 5%. So, whether the bond or Hysa is best for you, ultimately depends on your other goals.
For short -term and medium -sized (up to four years), the expense of high -income savings is a clear choice, as you can easily reach your money if necessary without worrying about penalties or losses.
However, bonds are useful for some mid -mid to long -term saving purposes. They offer guaranteed interest and repaid more than three times the average bank deposit average since 1970. In the middle (3.1%respectively compared to 0.6%).
For investors, some experts recommend keeping your livelihood costs between two and four years of CDs, bonds and other accounts with a low cancellation fee. This strategy helps prevent the temptation from selling shares at a loss through financial emergencies.
Here are some other scenarios when it is worth considering bonds through Hysas:
As you grow older, it is wise to move your investment portfolio more to low -risk assets, such as bonds. This is because you have a shorter investment horizon or less time to recover loss if there is a market downturn.
In addition, withdrawal from bonds can supplement your income after retirement. One way to do this is to set a bond ladder or invest in bonds with step maturity dates.
How much money should you invest in bonds? Currently, people over 70 spend less than 12% of their portfolio bonds on average. However, most of the ranges are recommended by much larger percentage:
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40 -ies: 0%-15%
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50 -ies: 15%-35%
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60s: 35-50%
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70+: 40-60%
The general rule of the thumb where it is necessary to invest in bonds is that as soon as the interest rates rise, the bond prices fall. And when the interest rates fall, prices increase. In other words, your investment time is important.
There are several speculation that the Federal Bank of Reserve will reduce interest rates by 2025. The end of the end. However, the reduction of the FED norms is likely to be from the table to September. So now is not the optimal time to buy bonds, but it can change in the coming months.