Ayesha received her tax refund and wants to put it aside to use for a down payment on a car that she will buy in a year or two.
What would be a good place for Ayesha to put her money in, knowing her timeline for this goal?
a CD (certificate of deposit)
(Choice B) stocks or bonds
B
stocks or bonds
(Choice C) a bank account
C
a bank account
The most suitable option for Ayesha to put her money aside for a down payment on a car within a year or two would be a CD (Certificate of Deposit) or a bank account. These options offer lower risk and are more liquid in the short term, ensuring that her money will be readily available when she is ready to make the down payment. Stocks and bonds, on the other hand, carry a higher level of risk and may not be suitable for short-term goals.
For the goal of saving money for a down payment on a car that Ayesha plans to buy in a year or two, the best option would be to put the money in a bank account (Choice C).
A bank account offers safety and easy access to the funds when needed. It is ideal for short-term saving goals like this, where the money will be needed within a relatively short period of time.
Investing in stocks or bonds (Choice B) may provide higher returns over the long term, but they also carry more risk and are subject to market fluctuations. Since Ayesha has a specific timeline for her goal, she may not have enough time to recover from potential losses if the market is down when she needs the money.
A certificate of deposit (CD) could be a viable option as well, as it offers a higher interest rate than a regular savings account. However, CDs typically require the money to be locked in for a fixed period of time, and withdrawal penalties may apply if the money is taken out before the maturity date. If Ayesha is certain she won't need the money before the CD matures, it can be a good choice for earning a slightly higher return.
Considering Ayesha's timeline of 1-2 years, a more suitable option would be a CD (certificate of deposit) or a bank account (Choice A and C).
A CD is a fixed-term investment that earns a higher interest rate than a regular savings account. It typically has a maturity period of 3 months to 5 years, but Ayesha can choose a duration that aligns with her timeline (1-2 years). The money invested in a CD is inaccessible during the term, but it will grow at a predetermined interest rate.
A bank account, on the other hand, offers convenience and easy accessibility to funds. Ayesha could choose a high-yield savings account or a money market account that provides a slightly higher interest rate compared to a regular savings account.
Both options (CD and bank account) provide a safe and reliable way to grow Ayesha's money while ensuring that it's easily accessible when she needs it for the down payment on a car. The choice ultimately depends on Ayesha's preference for potential returns versus accessibility during the chosen time frame.