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You can't invest in the stock market without taking on some degree of risk.
But your capacity for risk and your tolerance for risk are slightly different things. Even if you can afford to invest (risk capacity), there's still a chance you don't have the stomach for it (risk tolerance).
Most financial planners will still encourage you to invest for the long-term if you have a low risk tolerance. There are ways to mitigate potential losses, like diversification and a proper asset mix, and most of all, time in the market.
But if you're working toward a financial goal that you aren't willing to bet on - whether it's three years from now or a decade from now - it's probably best to keep your money in cash.
Here are three risk-free places to store your savings:
1. High-yield savings account
High-yield savings accounts are designed to keep your money safe and accessible. Your account is FDIC insured up to at least $250,000 and it's easy to link up to a checking account so you can transfer money to pay day-to-day expenses. Some high-yield accounts even come with debit cards.
Interest rates on high-yield savings accounts have dropped even further in the wake of the coronavirus, but that's no reason to write them off. They remain the more attractive choice over a regular savings or checking account when it comes to low fees and earning potential.
2. Money-market account
Money-market accounts are not to be confused with money-market funds, which are a type of low-risk investment. They're actually incredibly similar to high-yield savings accounts, providing FDIC insurance, easy access to your money, and competitive interest rates.
Some money-market accounts also come with a debit card and check-writing capabilities, if you need them. The important thing is that you're not only preserving your original savings and earning a small amount of interest on that money, but you're not losing a single cent.
Whether you're opening a high-yield savings or money-market account, be sure to check the minimum balance requirements to ensure you won't be assessed any fees if you dip below the required amount.
3. CD
A certificate of deposit (CD) is also a risk-free savings account, but with a defined time period and interest rate.
When you open a CD at any bank, brokerage, or credit union, you'll lock in an interest rate - typically, higher balances command higher rates - and agree to a maturity date, which can be anywhere from three months to five years. During that time, you can't add to your account or withdraw the money that's in there, unless you want to forfeit the interest you've earned.
CDs are best utilized in high-interest rate environments because they allow you to earn a fixed interest rate. If the Fed lowers rates during the term of your CD, it won't affect how much interest is deposited to you each month.
Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.
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