The 4 Smartest Places to Put Your Money in January 2024

A lot of people struggled with inflation in 2023, and unfortunately, we're starting 2024 in an environment of elevated living costs. But if you happen to be in a position where you have extra money beyond what you need for bill-paying purposes, then you have a prime opportunity to put that money to work. Here are a few smart places to stick your cash this month.

1. A savings account

The Federal Reserve's recent string of interest rate hikes has made borrowing more expensive across the board. But on a positive note, it's driven up savings account interest rates. These days, you can potentially earn upward of 5% on your money without taking on any risk (assuming you stick to an FDIC-insured bank) or making a commitment, such as with a CD.

One thing you should know is that the Fed might cut rates this year if inflation continues to cool. So the amount of interest you can earn in a savings account today may not be the amount you can earn come summer or fall. But still, it pays to take advantage of today's higher rates while you can.

2. A short-term CD

It's not just savings accounts that are paying generously these days. CD rates are up as well. And if you're looking to snag the highest interest rate you can, then it actually pays to look at a shorter-term CD rather than a longer-term CD.

Case in point: Right now, Capital One is offering an APY of 4.80% on a 12-month CD. The APY on a 48-month CD is only 3.95%.

Why would a shorter-term CD pay more than a longer-term one when the latter requires a longer commitment? It's simple -- the Fed is expected to cut rates in 2024. So longer-term CDs are more risky for banks right now.

Because of this, you may want to stick to a CD of 18 months or less. This also means less risk for you, since there can be penalties for cashing out a CD before its maturity date.

3. A long-term CD

We just said that if your goal is to snag the highest APY on a CD, a shorter-term one may be your best bet. But now's still a good time to open a longer-term CD.

As an example, Capital One is offering a 3.90% APY on a 60-month CD. But for all we know, the typical rate on a CD or savings account in a couple of years might be 2% or less. So if you're able to commit to a lengthier CD term, you can benefit from locking in a relatively high rate for several years.

4. A retirement plan

Savings accounts and CDs are good options when you don't want to invest your money, or you don't want to tie it up for an excessively long time. But another good bet for your money this month is to fund an IRA or 401(k).

First of all, the money you put into a traditional IRA or 401(k) can exempt some of your income from taxes. Also, investing that money over a long period could result in a really large balance.

Over the past 50 years, the stock market has rewarded investors with an average annual return of 10%. So if you put $5,000 into an IRA or 401(k) this year, in 40 years, that $5,000 might be worth over $226,000 if your retirement plan delivers that same 10% annual return.

Many people are barely able to make ends meet these days. If you have extra money to work with, consider yourself to be in a great spot. In that case, take advantage of your strong position by finding the right home for your money.