While I’ve already covered where you should keep your emergency funds, which can be accessed within a week if required, there’s the constant plague of not knowing where to keep one’s longer-term investments, such as a down payment for a house which will be saved for two to three years.

The three most popular options for these types of investments are high-yield savings accounts, mutual funds and CDs (GICs in Canada). While the best investment depends on the economy at the time, as of right now I would personally recommend CDs as being one of the better investments. Mutual funds are a terrible idea as the returns on them, save for a few led by amazing investors (Ken Heebner comes to mind), aren’t worth it at all. Many don’t even outperform the market, and on a year or so, if you look at the charts, you’re likely to only make one or two percent on your investment.

And so the debate becomes: CDs or savings accounts? This is where the economic state of the United States comes into question. Savings accounts generally offer higher percentages than CDs, but are much more volatile. Every time the Fed cuts interest rates, you can expect the rate of your savings account to be reduced by that same amount. CDs have a slightly lower rate, but are guaranteed. Given the way the economy is headed, if you have an investment such as a down payment for a house which you KNOW you won’t access for a couple of years, invest in CDs to avoid seeing your savings account interest rate reduce to below the CD level. It’s an extremely safe investment and guarantees you your rate in a world where it’s almost certain that it will take well over a year for interest rates to rise once again.

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