Where to park money a friend might need soon?[ Edited ]
I have offered to provide a safety net for a friend who is starting her business. I have told her I would put aside the cost of a studio she wants to rent for a year in case she is unable to pay the rent one of the months. What is my best option for holding that money? The rent will only be $500/month. I was thinking of setting up 12 CDs as that would give me a slightly higher return than a savings account, but she would still be able to access it fairly easily if she needed to. Is there a better option that I should be looking at? I don't expect that she will need to touch any of the money, but I do want to make sure it is all there for her up front so she does not have to worry, and I would also like to make sure there is no risk that I could lose the money in case she does need it. Thank you for any help or advice you can give!
Wow – now that’s a friend! Good for you!
I honestly think you’re on the right track here. Since the possibility exists that your friend could need this money within the next year, you really don’t want to expose it to any market risk (stock or bond). Consequently, something safe and secure like a savings account, money market, or CDs is probably your best bet.
Having said that, just be prepared that you won’t earn much on these types of products in today’s interest rate environment…likely less than 1% depending on what you use and where you get it.
Thanks so much for your question and best of luck to you and your friend!