When Is Putting Your Stimulus Money Into a Savings Account the Best Move?

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How should you decide what to do with your stimulus cash?

Last year, Americans received two coronavirus stimulus payments. The first was for $1,200 per qualifying adult and $500 for each eligible dependent. The second provided $600 per adult and dependent. And now, it's likely there will be a third stimulus check for $1,400 per adult and child dependent. This money could be delivered in early March if lawmakers are able to proceed on their planned schedule.

This is a lot of extra money, and if you're not pressed for cash, you may be wondering how to make the best use of it.

There are lots of different options. In some circumstances, the best course of action is to put the cash into a high-yield savings account. Here's when this would likely be the right financial choice.

When it makes sense to put your stimulus money into a savings account

Putting your money into a savings account is probably your best bet if these two things are true:

  • You don't need the money immediately to pay bills
  • You may need the money within the next two or three years

First and foremost, if you are struggling to pay your bills, there's no question about what you should do with your stimulus funds. Especially if you're concerned you may have to go into debt to cover your basic costs. Use the check to cover your day-to-day expenses. In fact, it makes sense to sit down and calculate any potential budget shortfall. That way, you can allocate your stimulus money to pay the most important bills first. You can also look into coronavirus hardship loans that may help you cover some of the shortfall.

But if your immediate needs are met, you'll have to decide between depositing your stimulus check into a savings account or investing it. And the best way to do that is to consider how soon you might need that money.

If you don't already have an emergency fund, there's a very good chance you could need one soon. You don't want to struggle to cover an unexpected cost during the ongoing pandemic, so the check you receive should go into savings as a starter rainy day fund.

Perhaps you think you may struggle to pay bills soon, even if you're OK now. You might be worried about an income cut, or planning to make a big purchase. In these cases, you should also put your stimulus cash into savings. In fact, if you think you'll need the money within the next few years, a savings account is probably the best place for it.

Under these circumstances, a high-yield savings account gives you a chance to earn a good return on investment without taking an unnecessary risk with your money. You can get a better rate of return than a checking account would provide, and also separate the money out from your everyday funds so you aren't tempted to spend it before you need to.

Investing in stocks is also an option

If you don't anticipate you'll need the money for at least three years and already have an emergency fund, you may be better off investing it in the stock market.

A high-yield savings account can provide a better return on investment than a checking account or traditional savings account. But the rate of return is still below what you might be able to earn by investing in a diversified portfolio of stocks. And if you won't need your money for a few years, you'll reduce the risk involved in stock market investments since you'll have time to wait out potential downturns.

Ultimately, you'll need to think carefully about whether you can afford the risk of putting your money on the line in order to hopefully earn a better return on it. You might decide you need to keep it accessible in case you need it to cover costs soon. There's no right or wrong choice, only the one that's best for you.

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