What’s the best place to put my cash savings?

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Q. I’ve been lucky and I’ve been able to save well. I max out my 401(k) and do an IRA, and I’ve accumulated $55,000 in cash. It’s just sitting in a money market. Should I do something different with the money?
— Saver

A. Congratulations on being such a good saver.

Deciding how to best proceed with the excess cash will depend on your specific goals.

If, for example, you have any large short-term financial goals — within the next three to five years — such as the purchase of a home, a car or a home improvement project for which you may need some or all that excess cash, you should keep the money in cash, said Marnie Hards, a certified financial planner with Aznar Financial Advisors in Morris Plains.

“You could keep the funds in a money market as you have done or in a high-yield savings account,” she said. “It would be worthwhile to compare the yields on the two options given the amount of cash involved.”

There are some online banks offering yields in the 0.60% to 0.85% range, so if this is better than the yield on your money market, it may be worth moving the money to a higher yielding vehicle, she said, noting that you should factor in any fees or expense ratios charged on the money because this can significantly reduce your yield.

In addition to setting aside cash to cover any big-ticket financial purchases, you should also try to keep a minimum of 3 to 6 months of living expenses in cash, she said.

“It can feel frustrating to have your money sit in cash earning close to nothing, but it will give you a great deal of peace of mind and control over your life if you have some sort of financial emergency,” she said.

Another thing to consider is the flexibility the excess cash buys you if you want to or must leave your job, she said.

“Having some extra cash on hand would mean that you would not have to jump into another job immediately just to pay your rent or mortgage and you would instead have the freedom to take a month or two to make the best decision for you,” she said.

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This story was originally published on April 28, 2022

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.