Are you struggling to save for a rainy day? You are in good company. According to a 2015 survey by GoBankingRates, 49% of Americans had no savings, and only 29% had a $1,000 or more in their savings account, so if you’re one of the few who have managed to save $1,000 or more, congratulations. But now what? Squirreling away those dollars was hard enough. Finding a comfortable, stress-free way to invest those savings is another challenge altogether.
So what should you do with your little nest egg?
Pay Your Consumer Debt First
Before we dive into what to do with your “extra” money, let’s make sure it is extra money. The average American household had $7.2k in credit card debt in 2015. If you are carrying any amount of consumer debt on a credit card, line of credit, or a payday loan, you must bring that debt to zero before you even think of investing. You are probably paying between 10% and 35% in interest on your debt, and, realistically, you’re only going to make between 0.5% and 10% interest on your savings. Trying to invest while carrying consumer debt will not reduce your debt or increase your wealth.
Once you’ve reduced your debt to zero, then you’re ready to get serious about investing. Here are some investments that you can make today, even if you only have $1,000 in savings.
Good Old-Fashioned Savings Accounts
Admittedly, today’s banks and financial institutions don’t offer unusually high returns on savings accounts, but it’s still more interest than you’ll make stuffing it under your mattress. Shop around; you can find accounts offering rates ranging from 0.5% to 4% on your money. Credit unions are a good place to start. Option 1 and Lake of Michigan, for instance, offer interest rates of 4% and 3%, respectively. Impressive for accounts that are insured by the National Credit Union Administration. The only catch is these rates only apply to the first $10k and $15k in the account, and you have to make a minimum number of purchases with your debit card every month to qualify.
U.S. Savings Bonds
Government savings bonds have long been a reliable investment vehicle. Again, they offer low-interest rates (painfully low), but they are backed by the full faith and credit of the United States government and are considered as risk-free as investments get. Certificates of deposit, or CDs, are a similarly boring but safe option for risk-averse investors.
Employer Group Investment Plans
Give your HR department a call and ask them if your employer offers any group investing options. If they do have a plan set up, you can usually take advantage of lower brokerage fees and the use of a fund manager to help you pick the fund that best matches your investing timelines and goals. Also, you can arrange to have the money taken directly from your paycheck and whisked away into the plan; you won’t miss it, and the money will be growing consistently and quietly in the background. Finally, some employers offer a matching program, so every dollar that you invest in the plan will be matched to some degree by them. Read the small print on these offers. There may be some strings attached, such as minimum time in the company or some sort of penalty if you transfer the money into another fund in the future.
Marketplace platforms are a relatively new investing option. It’s exactly what it sounds like. You put money into a pool, through websites like LendingClub and Prosper, and your payment is used to offer loans to individuals. You make a return on your money that varies according to the terms of the loan/investment. To limit your losses, you can diversify your portfolio by lending only small amounts, like $25, to any one borrower. More and more investors are adding P2P investments to their portfolios. It is easy to see why. Since 2009, the return on investment for LendingClub and Prosper has ranged from 5% to 11% APR.
Invest in Yourself
Don’t underestimate the financial benefits of investing in self-improvements. According to a 2015 study by Georgetown University, graduates with a bachelor’s degree earn an average of $61k a year over their career while those with a graduate degree earn an average of $78k a year. By taking extra courses in your field, you could qualify for promotions and raises you didn’t even realize existed. In some regions, just learning a second language can increase your chances of finding a better job or improve your starting salary. Also, by enhancing your education, you could become a specialist in your field or become qualified to teach or train others. If you’re a consultant, you could potentially increase the rates clients are willing to pay by specializing in one particular area of study.
Increase Your Productivity
Improving your productivity may require you to work less, not more. Studies have shown that a balanced diet, sleep, and regular exercise improve the performance of workers. So maybe the best place to invest your extra cash is on nutritious food, less overtime, a comfortable bed, a well-deserved vacation, or exercise equipment. Taking care of your body is a long-term investment you cannot afford to skimp on. You can always make more money, but body donors are hard to come by.
Are you not inspired by these investments? Do you want to make your savings work a little harder? Are you interested in taking your investment skills to the next level? Although investing in the stock market can be risky in the short term, stocks have, historically, performed better than any other type of investment, including real estate and precious metals. Before you choose a brokerage to start investing in the stock market, read SuperMoney’s reviews on the top online brokerages and wealth management companies.
Andrew is the managing editor for SuperMoney and a certified personal finance counselor. He loves to geek out on financial data and translate it into actionable insights everyone can understand. His work is often cited by major publications and institutions, such as Forbes, U.S. News, Fox Business, SFGate, Realtor, Deloitte, and Business Insider.