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Where should I store money while waiting to invest?

September 04, 2014

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

certificate of deposit

Q: I need help with the money I was awarded for a workers' compensation judgement. I just got $200,000.00 and want to be smart with the money as I am 54 years old with no other money to retire on ... I was thinking about moving south, and buying rental property and living off the rental income. Where would be the smartest place to put my money until I need it?

A: The short answer is that a certificate of deposit (CD) is probably the right answer for you. Your $200,000 is within the limits of FDIC insurance, so a deposit account would give you the absolute security you are looking for, and as deposit accounts go, a CD would probably give you a shot at a higher interest rate than a savings account or a money market account.

Beyond that generalization though, here are some more detailed points to consider about your plan:

  1. Short-term stability may be key. Normally, your retirement date does not mark the end of a retirement investment program -- it has to continue throughout the retirement years. However, since you already have an investment plan for once you retire, the key is keeping the money safe until then, and liquid for when you need it. That is why a deposit account seems like the right solution.
  2. Your time frame is also important. You didn't mention when you plan to retire, but this will determine what type of deposit account you should opt for. If you intend to start looking for a property right away, you might need the immediate liquidity of a savings or money market account. However, if you know it will be a few years before you are ready to make that move, think about a CD whose term matches the time till you plan to invest in property. Just keep in mind that CD rates vary, so once you've settle on a term, shop around for the best CD rates at that length.
  3. You have time for some research. Investing in and managing income property can be a complex undertaking. If you have some time before you plan to make your investment, use that time to do some practical research. This means not just looking into property values where you plan to invest, but also the demand and going rates for rental properties in the area.

Your caution about how to handle this money is well-placed -- $200,000 is a great deal of money to receive all at once, but it still is difficult to make that amount last throughout your retirement. That's why knowing what you invest in and protecting the money until you are ready to invest should be top priorities.

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