Question: What's the best use of my fiancée's savings?

I love to listen to your podcast while I work in the lab. I'm a doctoral student at MSU and my fiancée works as a technician in another lab. I have three years of school left, and I earn a meager stipend on an assistantship as I work towards my degree which includes health insurance coverage. My fiancée has a savings of about $20,000 that we have wondered what to do with. We will probably buy a house in the coming years, but we're not sure where we'll end up, depending on the position I'm able to get after my graduate work. What's the best thing to do with this money? He has no debt whatsoever, and I have about $37,000 in government student loans that I am making payments on while they are in in-school deferment right now. Is there a better investment to do with his savings than sitting in a low-interest savings account that we could still have access to somewhere in the next 5 years? Amber. East Lansing, MI

Response:

Thanks for listening. It’s frustrating to get paid so little on savings. That said, I would stick with keeping the money in a safe place, such as a government-insured savings account, short-term certificates of deposit, U.S. Treasury bills and the like. You can do a little bit better by searching for an online savings account, for example. Some short-term CDs will offer you better terms, too. (You can research the possibilities at a website like www.bankrate.com.) Nevertheless, the increases in interest payments you might capture by shopping around are incremental at best.

Thing is, three to five years isn’t that long a period of time. My concern is that the value of the savings you put into higher-risk higher-potential return investments will fall right around the time you need the money in a few years. I would look at your low-rate savings as your financial safety net for now. You’re already making a big investment with greater risks and potential rewards—your education. Stick with financially conservative investments until you have a better idea of the earnings return on your chosen field.

You mention that you might move for a job when you graduate. Your savings will be there to help fund the move to another state and city, plus all the costs that typically come with a new job. If it turns out you don’t need the savings to pay for a move, you could consider aggressively attacking your student loan debt or your could decide the student loan debt payments are manageable and put the money into a down payment on a home.

The bottom line: Keeping the money in a safe place for now increases your financial options once you graduate and start the next phase of your career.

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