Five Best Places for Black Americans and the Diaspora to Park Their Cash

It doesn’t take an investment banking expert to know that keeping money in your mattress, or worse, your basic checking account, is a bad idea. Despite this, many African Americans, nearly 13M by the 2018 government estimates, are “underbanked”. The term underbanked is a characteristic describing people who do not have sufficient access to mainstream financial services and products typically offered by banks and thus deprived of services such as credit cards or loans. Despite the emphasis in that definition on debt related products, the term underbanked is commonly understood to be about barriers that prevent African Americans from accumulating wealth.

One of the simplest way to begin accumulating wealth is with savings. That said, It is hard to save enough to make having a bank account worthwhile when you do not earn enough to save. While African American buying power has crossed the $1.5 trillion threshold, as of 2018, a recent study by Business Insider reports that African American households, on average, have about $1K in savings. On a per person basis, that total wouldn’t represent just 1/3 of current spending estimates. Instead of buying a new anything, we’ve identified 3 better places to put your money, no matter how big or small the number might be. 

  1. Certificates of Deposit (CDs). Most banks and credit unions offer CDs as an easy way for account holders to earn interest on funds that they don’t need constant access to. Like basic savings accounts, CDs are FDIC-insured, meaning all cash under the predefined limit is protected by the US Government. CD’s generally offer a higher interest rate than savings accounts, and rates increase depending on the size and length of the deposit. The one catch with CDs is that the funds must be kept in the account for the entire length of the specified term. If you attempt to withdraw the money sooner, you will face a penalty. The most popular CD periods are 6-month, 1-year and 5-years.

 

  1. Online Savings Account. Do you want insurance protected money, with a high savings rate, that you have constant access to? Then an online savings account is the right fit for you. Online savings accounts currently offer 2% or more in annual interest and are no frills accounts that offer limited service, but high returns. Online savings accounts are among the safest savings options available and are insured up to $250,000 in deposits per account holder. Some banks, and even credit unions, have jumped into the online savings game, so you don’t have to choose an obscure named bank to take advantage.

 

  1. Money Market Funds. Money market funds are offered by mutual fund and investment companies and currently provide interest returns of as high as 2.5% on average. These accounts are good backup options to a traditional savings account and invest in short-term, typically safe debt and short-term municipal and corporate debt. Despite the relative “safety” of these accounts, unlike savings accounts and CDs, money market accounts are not insured, meaning there is potential to lose money. Money market accounts require higher deposits, typically a minimum of $500 or more, but there is no limit on how much can be deposited or withdrawn after that initial deposit, so you do have constant access to the account.

No matter the account you eventually choose, each of these options will allow any money you put in these accounts to earn modest, but low-risk returns. Before choosing any of these, it is important you do research to understand what you are investing in, current interest rates, and the risks associated. Always do your homework before committing your money to a particular account.

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