You have $1,000 saved and you’re trying to figure out what to do with it. It would be a significant amount of money to splurge and spend all at once — but is it enough to invest? The truth is, $1,000 is a great place to start investing and can make a difference in your financial health.
Below, CNBC Select suggests several tapaksuci.id ways you can invest $1,000 and explains how to decide which option may work best for you. Some investments might offer greater returns, but they also come with greater risk. If your financial safety net allows for this risk, such investments are worth considering. If not, you can use your $1,000 to correct that.
1. Build an emergency fund
An emergency fund is crucial to your financial health. When you’re facing unexpected expenses, such as job loss, medical expenses or surprise home or car repairs, your emergency fund will keep you from straining your budget or going into debt.
Experts generally recommend having between three and six months’ worth of living expenses in your emergency fund. If you’re not quite there, $1,000 can go a long way.
A good place to park your emergency fund is a high-yield savings account. This way, you’ll get guaranteed returns in the form of compound interest. Some high-yield savings accounts are now offering around a 5% annual percentage yield (APY) — a return we haven’t seen since the 1990s. Plus, these accounts are usually FDIC-insured so they are virtually risk-free.
2. Pay down debt
If you have credit card debt, paying it off should be your priority, especially in a high-rate environment.
Let’s say you have a $1,000 balance on a credit card with a 20% APR and only make a minimum payment of $25 each month. The balance will take you 67 months to pay off and you’ll lose $661 to interest. Or you could pay the whole balance off instead and not worry about interest charges at all.
If you owe considerably more, you may feel as though $1,000 would barely make a dent in your card debt. In that case, you may also want to look into a 0% intro APR credit card or debt consolidation loan to save on interest charges. The Wells Fargo Reflect® Card, for example, has a 0% intro APR for 21 months from account opening on purchases and qualifying balance transfers (then 18.24%, 24.74%, or 29.99% variable APR). Balance transfers made within 120 days from account opening qualify for the intro rate, BT fee of 5%, min $5.
3. Put it in a retirement plan
Another aspect of your financial life you want to cover is your retirement funds. If your employer offers a 401(k) match, you may be missing out if you’re not taking full advantage of it. Further, it’s good practice to save 15% of your annual income for retirement (including any contributions by your employer). If that seems like a lofty goal to you at the moment, contributing $1,000 can definitely make a difference.
If you don’t have an employer-sponsored retirement plan, you can always invest in an individual retirement account (IRA) instead. The IRA contribution limit for 2023 is $6,500, or $7,500 if you’re 50 or older.
CNBC Select picked Charles Schwab IRA as the best IRA account. If you’re just beginning to invest, Fidelity Investments IRA can be an excellent choice.
4. Open a certificate of deposit (CD)
Let’s say your emergency fund is in good shape, you’re on track to contributing to your retirement plan and you have no high-interest debt. Yet, you’d rather not take on risk when it comes to your money.
In this case, you might want to look into certificates of deposit (CDs). This type of deposit account earns a fixed interest rate for a specific amount of time on the funds you deposit when you open an account. The term lengths typically range between three months and five years. Longer terms tend to come with higher APYs but with a traditional CD, you can’t withdraw your money before the end of the term. Otherwise, you’ll generally have to pay an early withdrawal penalty.
Interest rates on CDs are often higher than those on regular savings accounts. This means you might get better returns at the trade-off of no easy access to your cash until the maturity date. But if you already have an emergency fund parked in a more accessible account, putting extra money aside in a CD can be a good move.
5. Invest in money market funds
Kenneth Chavis IV, CFP and senior wealth manager at LourdMurray, suggests money market funds “for those who are not comfortable with investment risk but want to earn some interest on their money.”
Money market funds (MMFs) invest in lower-risk debt securities, such as U.S. Treasury bills and commercial paper, and are considered some of the safest investments. MMFs pay monthly dividends. The yield is typically close to or a little higher than on bank savings accounts. This is also a highly liquid option — you can withdraw the money you’ve invested at any time.
You can buy money market funds from a bank, fund provider such as Fidelity Investments or Vanguard or by opening a brokerage account.