Saving up $10,000 is a great milestone that opens up several financial opportunities. Now that you have a good cushion in savings, consider putting your money to work so you can continue growing it through passive income streams like high-yield savings accounts (HYSAs) and certificates of deposit (CDs).
You can also grow your retirement savings or pay down your debt to rid yourself of those pesky interest charges. And if you like the idea of investing but don’t know how to do it, look at one of the many automated investment platforms available today that make it easy to join the market without needing to be a Wall Street expert.
High-yield savings accounts (HYSAs) are just like everyday savings accounts but with higher annual percentage yields. How much higher? Well, some of today’s best HYSAs offer APYs of 4.50% or more — compare that to the 0.01% APY you’d get on a traditional savings account at big banks like Wells Fargo or Chase. The stronger APY earns you higher monthly interest payments while keeping your money safe and accessible.
How much more can I earn with an HYSA? The difference between an HYSA and traditional account can be pretty substantial. Placing $10,000 in a traditional savings account earns you a single dollar after a year, while the same amount in a 5.00% APY HYSA earns you $500 after that same year. And the gap only grows larger from there, thanks to compound interest.
What should I look for when choosing an HYSA? When comparing HYSAs for myself, top of my list was the APY, but I also considered fees, minimum balance requirements and ease of access to my money. Online banks like SoFi offer rates of up to 4.50% APY, well above what traditional banks offer since they pass along what they save on overhead to customers.
Dig deeper: How much should you keep in an HYSA?
Certificates of deposit (CDs) are savings products offered by banks and credit unions at rates that can outearn high-yield savings accounts in exchange for leaving your money untouched for a specific time. You can find CD terms ranging from three months all the way to 10 years. Once you open one, your APY is fixed, which means it won’t change until your CD expires, no matter how many times the Federal Reserve lowers interest rates.
What’s the benefit of locking in CD rates? Locking your CD rate is one of the best ways to prepare for lower interest rates resulting from Fed cuts. Fixed rates are a special feature of CDs that savings accounts don’t offer. A month ago, I opened a 14-month CD at 5.10% APY, which was a great relief knowing that even if rates drop, I’ll earn that same rate for over a year.
How do I choose the right CD term length? You should choose a term that you’d be comfortable locking your money for to avoid paying an early withdrawal penalty. Better yet, you can spread your money into a number of CDs with different APY rates and terms, a strategy called CD laddering. For instance, you can put $2,000 in a one-year CD, $2,000 in a two-year CD and so on. This gives you a good balance of high rates and access to funds from CDs as they reach maturity.
Dig deeper: How do CDs work?
Investing in your retirement is your key to long-term financial stability. The money you save up toward retirement typically receives one form or another of tax advantages that no other form of investing offers. On top of that, you give your retirement savings more time to grow the sooner you make your contributions.
What are the advantages of investing in retirement? For starters, if you contribute pre-tax dollars into a traditional 401(k) or IRA, you get to deduct the funds you contribute from your taxable income today and only pay taxes on your future withdrawals. On the other hand, Roth 401(k)s and IRAs let you contribute post-tax dollars today, but you get to avoid any income taxes on these contributions and their growth when you retire.
How much should I contribute to my retirement savings? Instead of adding a lump sum to your retirement savings, aim to spread your contributions over time by electing to save 15% of your income for retirement. This is a common guideline that ensures your savings grow steadily over time. Plus, it lets you invest your contributions at regular intervals regardless of whether the market is high or low. This strategy, known as dollar-cost averaging, tends to offer more stable returns over the long term.
Dig deeper: How to withdraw money from your 401(k)
Interest charges you pay on car loans, credit card debt or personal loans can eat away the value of your savings. That’s why it’s a smart move to prioritize paying down high-interest debt. An effective strategy for paying down high-interest debt is the avalanche method. With this method, you list out your existing debts and the interest rates you pay for each. From there, you make minimum payments on all of them and focus any remaining funds toward tackling the debt with the highest interest rates.
What are the potential savings from early debt payoff? You can save quite a bit of money by paying your debt sooner. For example, a minimum $100 monthly payment on $5,000 in credit card debt at a 20.00% annual percentage rate (APR) will cost you a whopping $5,840 in interest alone. Increasing your payment to $500 monthly could cut your total interest to $515 — a savings of $5,325.
Should I use my money toward debt or high-yield savings? Putting your extra money toward high-interest debt can offer bigger financial rewards. Think about it this way: The interest you’d save by paying off a 7.00% APR auto loan will outweigh the 5% you’d earn with the best HYSA on the market today.
Dig deeper: Top 5 debts to prioritize paying off before retirement
Robo-advisors are investment platforms that use advanced algorithms to automate your investments and help you manage your financial plans. You'll still be in control of your money, but without dealing with the complexities of traditional investing or day trading. That’s why I chose robo-advisors like Charles Schwab Intelligent Portfolios and Wealthfront Automated Investing when I began investing beyond my retirement plan.
How do I invest with a robo-advisor? When you set up your account with a robo-advisor, you’ll answer questions about your personal finances, goals and risk tolerance. The platform then uses your answers to put together a mix of exchange-traded funds (ETFs), mutual funds and other low-cost assets into a portfolio. These funds can cover hundreds or even thousands of stocks, bonds and other securities, minimizing the impact one or a few stocks can have on your portfolio. But keep in mind that you can still lose money during market downturns.
How should I approach investing with a robo-advisor? Use dollar-cost averaging by transferring the same amount of money from your bank account to your robo-advisor account at regular intervals, instead of jumping in head first with a $10,000 lump-sum investment. Your robo-advisor automatically uses the money it receives to buy more shares when the market is low and fewer shares when the market is high. This helps balance your portfolio and mitigate the impact of market volatility.
Dig deeper: 7 best low-risk investments for retirees
It’s just as important to learn how to maintain and grow your $10,000 savings through budgeting as it is to explore ways to put them to work. Setting up and sticking to a solid budget not only helps you protect your nest egg, but also supports your long-term financial security.
Here are three key steps to strengthen your budget:
Simplify how you budget. Writing down every expense gets tedious pretty quickly. Nowadays, you have your choice of top budgeting apps to automate this process for you while protecting your data and privacy through advanced security features. These apps have made it so much easier for me to track my money, savings, retirement accounts and more in one place.
Stick with a tried-and-true budgeting strategy. You can find many budgeting strategies out there — from the 50/30/20 rule for needs, wants and savings to the no-budget budget for people who don’t want to worry about the details. Explore the best budgeting strategies to find one that fits with your income and spending, which will help you establish a consistent routine for your everyday finances.
Automate your savings. Take the guesswork out of how you save money by setting up regular transfers from your checking account to your high-yield account. Your money is easily accessible, just out of the way of your daily spending.
Yes, $10,000 is certainly enough to start investing. If you’re new to investing, a good starting point is to open a brokerage account and invest in low-cost index funds or ETFs that track the broader stock market. This approach won’t expose you to the risks of investing in individual stocks, like fluctuating prices. Plus, these low-cost funds offer lower fees compared to actively managed funds, which keeps more of your profits in your account. Keep in mind that all investments can lose value, so there’s always the potential you’ll lose money.
Two of the best places to park your savings are high-yield savings accounts and money market accounts. Cash in these accounts grows by compounding interest on your initial balance and interest you’ve already accumulated, making them an ideal place for building an emergency fund. To set money aside specifically for medical needs, you might be able to set aside pre-tax money within a health savings account (HSA). If you’re saving for retirement, consider investing some of your money in a traditional IRA or Roth IRA. Find a trusted financial advisor who can help you create a solid long-term plan to grow your money and improve your finances.
Yes, saving up $10,000 is a great progress toward an emergency fund that can cover unexpected expenses. Experts advise setting aside enough money to cover three to six months’ of living expenses. If you have a family, more money on hand can be a safety net of support to bridge the gaps if you lose your source of income.
Editorial disclaimer: Information on this page is for educational purposes and not investment advice or a recommendation to buy any specific asset or adopt any particular investment strategy. Independently research products and strategies before making any investment decision.
Yahia Barakah is a personal finance writer at AOL with over a decade of experience in finance and investing. As a certified educator in personal finance (CEPF), he combines his economics expertise with a passion for financial literacy to simplify complex retirement, banking and credit topics. He loves empowering people to make informed financial decisions that improve their everyday and long-term wellness. Yahia's expertise has been featured on FinanceBuzz, FX Empire and EarnForex. Based in Florida, he balances his love for finance with freediving, hiking and underwater photography.
Article edited by Kelly Suzan Waggoner
