Federal stimulus checks are criss-crossing the country, with more than $215 billion being deposited into American bank accounts.
If you’re under financial pressure, spend the money on immediate needs like rent, food, and utilities. If you’re not under immediate financial pressure, here are some options for making the most of your stimulus payment.
The stimulus checks, also known as economic impact payments, are meant to provide financial relief from the COVID-19 pandemic that has shut down the economy, shuttered schools, and caused the unemployment rate to skyrocket to nearly 15 percent.
Americans who reported a gross income of less than $75,000 are eligible for a $1,200 payment. Those with children are entitled to an extra $500 per child. So a married couple earning less than $150,000 and raising one child would be entitled to $2,900.
For people not in an emergency financial situation, we have broken down the best options for making the most out of your stimulus payment.
Before you can decide how to save or grow the money from your economic impact payment, you need to be able to cover the necessities. Consider these categories before deciding to save.
Rent or mortgage, utilities, medication, food on the table—these are the basics. Take care of these before saving.
After you’ve met your basic needs, consider paying outstanding debt. It probably can’t pay off your car or your student loans, but it can help.
If you’re still working, you may be in a place to save, but keep in mind that the job market is very unstable right now. Plan carefully even if the current outlook is smooth.
There are a few other expenses you need to consider before you research savings options. Do you need to make a necessary repair to your house or your car? Did you borrow money for your last month’s rent? If so, factor those into possible immediate expenses to cover.
If you’re confident in your financial security to sock away your stimulus payment, let’s look at your long-term savings options. Don’t just hold it in your checking account, there are better ways to store your money.
High-Yield Savings Accounts
If you’re furloughed or collecting unemployment, consider a high-yield savings account or a short-term certificate of deposit (CD). A CD is a bank product that offers customers a high interest rate in exchange for a lump-sum deposit that the customer can’t touch for a specified amount of time. This will allow you to access your stimulus money sometime within the next few months or years and grow meaningful interest.
Many banking institutions have seen their annual percentage yield (APY) fluctuate with the changing market.
Keep an eye on the minimum opening deposit amount. Some of the online banks require hefty deposits to take advantage of their highest APYs. The best APYs at the time of the writing of this article are around 1.5%.
Another savings option is a high yield CD, which generally offers a higher APY for longer terms. Marcus by Goldman Sachs offers 1.6 percent APY with a $500 opening balance. But their APY stays relatively flat even for longer-terms, rising only half a percent to 1.65 percent for a 5-year CD.
Comenity Direct offers a 1.7 percent APY on a 1-year CD and a 1.8 percent APY on a 5-year CD. But they require a $1,500 minimum deposit and you may not want to tie up that much money for so many years.
Saving for Retirement
If you’re sure you’ll be financially stable without your stimulus check, put that money into your IRA or 401k to ensure good long-term growth.
The Motley Fool broke down the potential outcome of putting your stimulus check into your retirement account, stating, “If you invest that $1,200 at an average annual 7% return…and you’re 35 years away from retirement, you’ll ultimately boost your nest egg by nearly $13,000.”
However you choose to save—or spend—your economic impact payment, make the choice that works best for you. Everyone’s definition of financial security is personal and only you know what’s best for your situation.