Savings can be categorized by purpose and/or length of time until they are needed. Short-term savings that will be needed within about a year should be kept in cash-equivalents like savings accounts, no-penalty CDs, and money market accounts. An emergency fund is a type of short-term savings. Mid-term savings are for goals or purchases that will be made within a few years, and may be kept in cash-equivalents or in conservative investments. Long-term savings will be used at least five or ten years out from the start date, and can be aggressively invested. Retirement savings are a specialized type of long-term savings.
Further reading: How to Set and Achieve Savings Goals
| Type of Savings | Time Horizon | Investment Type |
|---|---|---|
| short-term | 1 year | cash-equivalents |
| mid-term | 2-5 years | cash-equivalents and/or conservative investments |
| long-term | 5-10 years and longer | aggressive investments |
| retirement | until your target date (likely decades) | aggressive investments (appropriate to time horizon) |
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