Dear Liz: I am 27 and make a great salary and commission for my age. I recently set a personal goal of having $30,000 saved by the time I turn 30 as a down payment to buy my first home. But I am at a loss about the best way to make the most of this money.
I am contributing to a savings account that started out with a 4% interest rate but has declined to 1.8%. I can’t seem to find an account with a better rate. Am I letting money go to waste? Is there a better option to help me reach my goal?
Answer: When it comes to cash you’ll need in a few years, you need to forget about “making the most” of your money in favor of making sure you still have it when you need it.
That means keeping the money relatively safe in a savings account, money market mutual fund or certificates of deposit.
You may be tempted by investments promising higher rates of return, but more return means taking more risk of losing your money and possibly delaying the time when you can buy your house.
You can get a slightly better rate — 2% or so — by investing your cash in one-year CDs offered by some banks (check Bankrate.com for a list). But beware of locking your money up for much longer. As the economy recovers, interest rates are likely to rise, and you’ll want to benefit as much as possible from that trend.