NEW YORK (MainStreet) Interest rates are creeping up a bit but still remain painfully low for investors. You want to save money for retirement, but you want to do it the right way. How much should you have in your savings account? What do you do after that? We spoke to a number of investment and retirement planning experts to provide you with a range of options on how you can prudently park your money in places other than a savings account.
First Things First
Before you start with anything else in this article, experts agree: you should max out any contribution that you're making to a matching 401(k) program and have between four and six months worth of emergency saving socked away. After all, a savings account has one very attractive feature: you can pull it out whenever you want without a penalty.
Using CDs the Right Way
Certificates of deposit (CDs) don't offer interest rates that are fabulous. When used properly, however, points out David Mazzetti, a certified retirement and financial planner with Ameriprise, they can provide a semi-liquid source of funds at more attractive interest rates than a traditional savings account. It's called laddering, and it works like this: you stagger your CD purchases so that they're maturing once every year or once every six months. "This allows you access to longer-term rates, while also providing some liquidity," he explains.
Elle Kaplan, CEO and Founding Partner of Lexion Capital Management, LLC is very direct: "Anything beyond six to eight months of real living expenses in a savings account is modern-day mattress stuffing." She also has a very simple answer about how to save. "Any money you don't need for three years should be invested, and it should be invested in the stock market."