When someone sells a house that they have a lot of equity in, they may end up with a large sum of cash in their account. Some people don’t have a plan to use the money immediately, but letting it sit in a regular checking account produces very meager returns, if any. That’s why it may be best to invest the money in short-term, low-risk, and liquid investment vehicles. These will allow quick access to the cash, while growing it with a relatively low risk of loss.
Here are some of your options:
- High-yield savings accounts: A high-yield savings account is an FDIC-insured account that typically pays higher interest rates than traditional savings accounts. These accounts can be a good option for short-term investments because the risk of loss is virtually zero and the money is easily accessible.
- Money market accounts: Money market accounts are similar to high-yield savings accounts, but they may also come with check-writing and debit card capabilities, which makes access to the money even easier. The downside is that these accounts may have higher minimum balance requirements.
- Short-term bonds: Short-term bonds are debt securities with maturities of one to five years. They typically offer higher yields than savings accounts and money market accounts, but they come with some level of risk.
- Certificates of deposit (CDs): CDs offer fixed interest rates over a specific period of time. They can be a good option if you’re willing to lock your money up for a few months or years, as they often offer higher interest rates than savings accounts or money market accounts. There is no risk of principal loss.
- Treasury bills (T-bills): T-bills are short-term government bonds with maturities of one year or less. They are backed by the U.S. government and are considered to be very safe investments. Profits earned on T-bills are only taxed at the federal level, saving owners from state and local taxes
This is just a general overview of some of the options, and we encourage everyone to do their own research on which options may be best for them. Specific fees, interest rates, and any penalties for early withdrawal may be important to consider.
And if you are still thinking about selling your house, contact us to see what we can do for you!