Barbara O’Neill, Ph.D., CFP®, AFC®
Distinguished Professor and Extension Financial Management Specialist Emeritus
Rutgers Cooperative Extension
Congratulations! You decided to save or invest (more) money in 2023 as a New Year's resolution. You then spent January figuring out ways to "find" money to do this by increasing income, reducing expenses, or both.
Now it's time to start setting money aside, but you are wondering where you can put $1,000 or less. Don't worry…you are not alone. Many savers/investors start with just several hundred dollars. In other words, they practice "small step investing." If done consistently over time, it can result in 5-, 6-, and even 7-figure sums!
Below is a brief description of eight places to stash $1,000 or less:
Bank Savings and Money Market Accounts- With the Fed funds rate over 4%, there is no reason to earn the December 2022 average savings account interest rate of 0.24%. Online bank savings and money market accounts currently pay about 3.3% to 4%+. Be sure to check the minimum deposit amount needed to avoid fees.
Certificates of Deposit (CDs)- Minimum deposit amounts vary by financial institution and may be as low as $250 or $500. Interest rates are locked in for a specific time period. Some 12-month online bank CDs are now paying about 4% and CDs purchased through a brokerage firm often pay 0.5% to 1% more. Shop around.
Bonds- Corporate bonds are IOUs to companies and pay semi-annual interest until they mature, at which time investors get back their original investment (principal). They typically sell for $1,000. Treasury securities (bills, notes, and bonds) are IOUs of the federal government and can be purchased with a minimum of $100.
Employer Retirement Savings Plans- These are 401(k)s (corporations), 403(b)s (schools/non-profits), 457s (state/local government), and the Thrift Savings Plan (federal government). Minimum deposit amounts are determined by employers as a flat dollar amount (e.g., $250) or a percentage of gross pay (e.g., 1%) per year.
Individual Retirement Accounts (IRAs)- Traditional and Roth IRAs are not an investment per se but, rather, a tax-advantaged retirement investment account for taxpayers with earned income and their spouses. Minimum deposit amounts vary among IRA account custodians and the specific investments selected to put into an IRA.
Low-Cost Stocks- Many publicly traded companies allow investors to buy stocks directly from them via a Direct Purchase Plan (DPP), thereby eliminating the need to pay brokerage fees. Minimum investments are typically affordable (e.g., $100). Another way to buy stock inexpensively is through an investment club.
Mutual Funds- Mutual fund shares provide ownership in a portfolio of stocks (growth funds), bonds (income funds), and other securities that comprise a fund portfolio. Many mutual funds accept initial deposits of $1,000 or less to open an account and minimum subsequent deposits are usually lower (e.g., $100).
U.S. Savings Bonds- U.S. savings bonds come in two types: Series EE and the inflation-adjusted Series I bond that garnered so much attention in 2022. Current rates of return through April 30, 2023 are 2.10% for EE bonds and 6.89% for I bonds. Both types of savings bonds can be bought for as little as $25 through Treasury Direct.
In summary, it does not take a lot of money to start saving or investing. Why not take your first step today?