Wondering Where to Stash Your Cash? Start Here.

I vividly remember the moment when I finally paid off my student loans. I'd been shelling out several hundred bucks a month and now I was free. I could pay that money to myself! But now what? I knew I wanted to save for a down payment on my first home, so at least I had a goal. What I needed was a strategy.

I wanted to keep this money separate, not commingle it with my everyday cash. And I figured I'd need it in two to three years, so I didn't want to put it in the stock market. On the other hand, I was working hard for my money, so I wanted it to work hard for me. I decided to first put the extra monthly cash in a money market fund, which at the time was paying more interest than a savings account. Then, as my balance grew, I started buying CDs. It was a strategy that helped me keep my cash earning, while keeping it safe and accessible. And it worked.

It's tempting when you have extra cash to just spend it. But if you really don't need it to cover everyday expenses, and you have an emergency fund in place, there's a lot more you can do with it. In fact, whether you're looking at where to stash your everyday cash, your emergency fund, or maybe some extra money you got from a bonus or after paying off a debt like I did, you have several choices. It all depends on how soon you need your money, how much risk you're comfortable taking, and your goals. Here are some to consider.

The goal of the following accounts isn't to make a huge return, but to help you pay for day-to-day or emergency expenses. But it still makes sense to try to get the biggest bang for your buck.

• Interest-bearing checking account—This is your workhorse for everyday needs, allowing you to write checks and have easy ATM and debit-card access to your cash.
• Savings account—This is probably the category with the widest variation in features and yield, so doing some comparison shopping is well worth your time. These usually pay more interest than checking accounts, but there may be restrictions such as limited withdrawals and debit-card transactions. To get the highest interest, you may also have to maintain a relatively high minimum balance.
• Money market account—Institutions can offer relatively high interest rates on these accounts by investing your money in high-quality, short-term debt. Like high-yield savings accounts, they likely have restrictions such as limited check writing privileges (over certain minimums) while generally providing higher yields than a checking account.
• Short-term certificate of deposit (CDs)—Offered by banks, credit unions, and other financial institutions, CDs pay a fixed yield until maturity. Shorter-term CDs generally fall in the range of three months to one year. Penalties apply if you withdraw early.

Banks that are FDIC-insured can protect accounts up to $250,000 per account holder, per ownership category. The National Credit Union Administration (NCUA) insures checking and savings accounts at credit unions up to the same limits. Most banks or credit unions are insured by either FDIC or NCUA, but only up to the stated limit above. Any amounts above these thresholds may not be protected.

If you have a brokerage account, you could also consider investing your money in a money market fund, like I initially did. Technically, these are a type of mutual fund that primarily focus on stability and capital preservation. The underlying investments are conservatively invested in very short-term debt.

Money market funds are not insured by the FDIC but may be protected by the Securities Investor Protection Corporation (SIPC). SIPC protects up to $500,000 of cash and investments (with a maximum of $250,000 in cash only) per separate capacity. They generally (but not always) offer higher yields than the other accounts I mentioned.

I knew saving for a home down payment was going to take a while, so I was comfortable considering slightly longer-term, higher-yielding options. Here are some of those choices:

• Brokered CDs—While bank CDs are often purchased directly from a bank, a brokered CD is typically purchased through a brokerage. Brokered CDs allow you to easily choose from banks all over the United States. And in general, the wider the range of CD products, the wider your selection of maturity terms and yields. If you shop carefully, you may be able to find more suitable—if not competitive—terms and yields by virtue of having a wider selection of choices. Also, if you're worried about going over the FDIC threshold for one bank, you can easily spread your dollars across multiple FDIC-insured banks to cover larger amounts beyond the $250,000 FDIC insurance coverage threshold.
• Longer-term CDs—If you know you won't need your money for many months or longer, you might consider purchasing a CD that matches your time horizon. In general, the longer the term, the higher the yield. One strategy is to build a CD ladder, which means buying a series of CDs with different maturity dates. That can help to increase your chance of getting a good interest rate in the present and in the future. CDs are federally insured, but you may be charged a penalty for early withdrawal.
• Treasury bills—Treasury bills mature anywhere between 90 days and 12 months, and the longer the duration, the higher the yield. Backed by the full faith and credit of the U.S. government, you can buy Treasuries either from a broker or directly from the government at TreasuryDirect.gov. Treasury bills are exempt from state and local tax, so they can be an especially good deal if you live in an area with both. One potential downside? You'll miss out on some yield if you sell them before maturity.

With some smart shopping, you could find and combine accounts that could help you grow and protect your savings. For example, you could choose to keep everyday cash in an interest-bearing checking account, emergency savings in a money market fund, and a house down payment in longer-term CDs.

I understand there are lot of choices here, and creating a cash strategy may not be the most exciting part of managing your money. But believe me, while it might seem kind of boring now, it won't be boring if you get higher interest rates to help reach your goal—it'll be exciting! That's certainly how I felt as I watched my down payment grow and was finally ready to buy.