In this post, I talk about where lawyers can put their money for short-term savings goals e.g. down payment, vacation, vehicle, an emergency fund, and new suit. There are options when it comes to where you can store your money when saving for a short-term goal. You can invest it, put it in a savings account, a chequing account, a GIC, etc. Read on to find out which one I suggest for your short-term savings goals.
Short-term savings goals can sometimes be awkward because you want to be able to access the money easily, but you also want to try to earn as much interest on it as you can.
Where Should You Put Your Money for a Short-Term Savings Goal?
Ms. OYP’s (“Owning Your Profession”) brother called me the other day. He’s in his early 20s and wants to start saving for a condo (he lives in Vancouver, so a house is out of the question!). I was stoked that he called because, not only did it feel good that he trusts my advice, but I was proud of him for having a goal and making a plan to achieve it! If you’re new here, read about me (Mr. OYP) here.
He wanted to know where he should put his money while he’s saving for his some day place. His goal is to have enough for a down payment in 3 years and he already has some money saved towards this goal. He had heard that the stock market would be a great place to park his money… apparently someone had even told him to put all of his money into one specific bank stock!
Of course, my brain melted when he told me this. Folks, the market is a great place to invest, but only if your time horizon is long. I’m talking 10 years or more. It’s not the place to park money for shorter term goals. The market is volatile. It goes up and down. Sure, there’s a chance that if he puts his down payment money in the market, it may increase in value. BUT, there’s also a chance that the value of his money will go down and he’ll have to crystallize that loss when he needs to take the money out and plunk it down on his new place.
You don’t want to put money in the market that you can’t stand to lose in the short term. In any event, you definitely don’t want to put all of your money in one stock! Way too risky for my blood. Read my article here on how I invest my long term money in the stock market.
Why You Should Put Your Money in a High-Interest Savings Account
My advice to Ms. OYP’s brother was to play it safe with his down payment money and just put it into a high interest savings account. Sure, the potential return on that money may be lower than if he put it into the market, but it’s a guaranteed way to make sure the value of his money doesn’t drop. And, he’ll get some interest on it to help it grow a bit. There’s no need to gamble with that chunk of money. That’s my humble opinion.
We Keep Our Emergency Funds In An Online High-Interest Savings Account. Here's Why.
Ms. OYP and I have recently moved our emergency funds to an online bank, so we had some advice for her brother about which bank to choose for his down payment money. I had been with the same bank since I opened my first account ever. As such, I always had my savings account with that brick and mortar bank (“brick and mortar” just means the physical location of a big bank). I kept my emergency fund in that savings account. I never really thought much about it, but was frustrated by the low interest being paid on my money in that account. Up until recently, I just figured I’d keep my money there as a low interest rate was better than no interest rate. Plus, the status quo was easy.
Thankfully, now there are plenty of online banks that offer higher interest rates since they do not have the expenses associated with being a brick and mortar bank. Doing a quick Google search will come up with numerous options. Ms. OYP and I now hold our emergency funds (also known as Ms. OYP’s F-U money account) in EQ Bank’s Savings Plus Account. It has no monthly fees, no minimum balance and unlimited transactions. The best part, we get 2.30% interest on our money! This doubles the interest paid by most brick and mortar savings accounts. With inflation generally being about 2 or 3% per year, we are able to basically keep up with the expected inflation rate. The interest paid by most brick and mortar banks doesn’t keep up with inflation, so your money loses purchasing power every year. This makes online banks a perfect place to save your money for short-term goals.
Consider Using An Online Bank For Your Short-Term Goals / Emergency Funds
By no means is EQ bank the only option. It is just the one we chose based on the interest rate and on the reviews we read. There are many other viable options out there and some pay a higher interest rate than EQ Bank.
So, my advice to Ms. OYP’s brother was to do some research and open up a savings account with an online bank. I told him to come up with how much he thinks he’ll need to have as a down payment. Then, since his goal is 3 years away, I told him to divide that amount up by 36 months to figure out how much he needs to save on a monthly basis and set up an automatic transfer of that amount to his savings account each month. That way, he doesn’t need to think about it. He simply pays himself first and ensures he is one step closer to his goal each month. And, with the interest he’ll earn on his money, he may even reach his goal slightly sooner!
So, whether you’re a lawyer looking to save up for a down payment, some other short-term goal or just wanting to optimize your emergency funds, or start an F-U money bank account, look into an online bank. Just some food for thought when it comes to where to put your savings for short-term goals.