This post is accurate as of the above date. We update information in certain posts on an ongoing basis.
Certain posts contain information that we update on an ongoing basis without changing the publication date. This information includes, but is not limited to, the APY and FDIC insurance offered through our program banks in our Cash Account, yield and return figures in our Automated Bond Portfolio, and other editorial notes. If and when we make wholesale material updates to a post, we will update its publication date.
Summary
- Consider keeping your short-term savings in a high-yield savings or cash management account with low fees, FDIC insurance, and a high Annual Percentage Yield (APY). That way, your money will grow a little and be there when you need it.
- Consider keeping your near-term savings in a high-yield, diversified bond portfolio. That way, your money can grow at a 1–3% higher rate than a high yield cash account with only a minor increase in risk.
- Consider keeping your long-term savings in a low-fee, diversified investment account. That way, your money will have a better shot at keeping up with inflation and increasing your buying power.
No matter what kind of goal you’re saving for, Wealthfront offers the accounts you need to meet them with confidence.
How should you categorize short-term, near-term, and long-term goals?
When you think about your financial future, you probably have three kinds of goals:
- Short-term goals: Like a vacation you plan to take later this year
- Near-term goals: Like a down payment for a house
- Long-term goals: Like sending a child to college or retiring
In order to give yourself the best chance of comfortably reaching those goals, you should approach your short-term, near-term, and long-term savings differently.
What is the 1–3 and 3–5 year rule?
Knowing when you need your money can help you decide how to save and invest. We like to think of the next five years in three sections. As a rule of thumb, this is the short term, near term, and long term.
| Type of goal | Time horizon | Suggested approach |
| Short-term | Anything in the next year | Consider saving cash in a high-yield savings or cash management account |
| Near-term | Something in the next one to three years | Consider cash, bonds, a certificate of deposit (CD), or a diversified portfolio of bonds or bond ETFs |
| Long-term | Anything more than three to five years away | Consider investing in equities through a diversified investment account |
If your goal is in the middle of that range, say four years, you should take into account how flexible your timing is. For example, if you know you will definitely want to buy a new home in four years and you have no flexibility on the timing, you may want to treat that as a near-term goal. But if you are pretty flexible and would be OK waiting another year or so if you needed to, it’s probably fine to treat buying that home as a long-term goal.
Where should you save for a short-term goal?
If you have a short-term goal, it’s important to make sure the money you’ll need is available to you in the next year, when you’re ready to invest or spend it. That’s why you should consider saving for short-term goals in a cash management or high-yield savings account (HYSA).
By using a cash management account like the Wealthfront Cash Account, you can:
- Avoid taking market risk with your short-term cash
- Earn many times the interest you’d earn at a bank
- Keep your money available when you need it
You should choose an account that doesn’t charge fees, as fees will erode your wealth over time. You’ll also want to pick an account where your savings will be FDIC insured. (You can earn an industry-leading APY on your short-term cash with a Wealthfront Cash Account.)
Should you invest money you need within the next year?
Avoid the temptation to invest your short-term savings. Financial markets are unpredictable in the short term, and it would be unfortunate to need cash at the exact moment your investment portfolio temporarily declined in value. This is the same reason that it typically makes sense to keep your emergency fund in a cash management or high-yield savings account instead of in the market.
How should you save or invest for a near-term goal?
If you’re planning for a big expense in the next three years, we consider that a near-term goal. To save up, you have a few different options.
One option is to hold your savings in your high yield savings or cash account for a longer period of time.
If you’re in the market to buy a home and waiting for the perfect opportunity to come along, you might prefer to hold those savings in cash so that you can jump at the opportunity sooner than you expect.
When should you consider bonds or a CD?
If you’re open to taking on some risk and you know the opportunity is going to be at least a year from now, a good option for your savings is to invest in bonds or a certificate of deposit (CD). A CD is a savings account, typically offered by an FDIC-insured bank, where you agree to leave a fixed amount of money untouched for a set period of time in exchange for a higher interest rate.
Fixed income products like bonds and CDs are lower risk than equities but have a higher potential earning than saving your money in cash. It can be tempting to put all of your extra cash in just one or two bonds, but like investing in equities, one of the best ways to mitigate risk is to diversify across multiple bonds or bond ETFs.
How can you invest in bonds?
There are many ways to invest in bonds:
- Purchase a bond directly through a brokerage firm
- Purchase a Treasury bond through TreasuryDirect
- Invest in bond ETFs
- Invest in bond mutual funds
Unfortunately, buying bonds directly can come with challenges:
- High minimums
- Lack of diversification
- Liquidity restrictions
How do bond ETFs differ from individual bonds and CDs?
Bond ETFs can help address these obstacles because, like stock ETFs, they trade on stock exchanges throughout the trading day and typically hold a diversified portfolio of bonds. This structure can provide investors with greater liquidity than purchasing certain individual bonds directly. This means:
- The money is available to you regardless of a single bond’s maturity date
- Bond ETFs are naturally more diversified than an individual bond
How does Wealthfront’s Automated Bond Portfolio work?
Our Automated Bond Portfolio is made of a diversified mix of bond ETFs designed to provide a higher yield than Treasury bills, CDs, and high-yield savings accounts. It provides:
- More liquidity than bonds and CDs
- Less risk than equities and corporate bonds
- Tax optimization for your personal situation
This combination makes it a great place to grow the savings that you need soon, but not urgently.
How should you save for a long-term goal?
If you’re saving for a purchase you won’t make within the next three to five years, that’s a long-term goal. To save for your long-term goals, a good option is to invest in equities.
Why might cash or bonds be unsuitable for long-term goals?
Many people are tempted to hold their long-term savings in cash. But the problem with saving for long-term goals in a savings or cash account—even a high-yield account—or in bonds is that the rate of earning on these accounts has seldom kept up with inflation over the last decade.
This means over time your savings can actually lose buying power. Investing in equities can help you avoid this problem by allowing you to earn a higher rate of return over the long term with added risk.
How should you plan to invest for a long-term goal?
There are endless ways you can invest your money, but we suggest investing in a diversified portfolio of low-cost index funds instead of investing your life’s savings in individual stocks, which is riskier and more likely to underperform the market’s annualized return.
You don’t have to take our word for it: academic research has consistently found that diversifying your portfolio across asset classes is one of the best ways to maximize returns across every level of risk.
You can start building long-term wealth with investing best practices with The Wealthfront Portfolio.
Should you use a tax-advantaged or taxable investment account?
When choosing an investment account, there are two main types to consider:
| Account type | Features and considerations |
| Tax-advantaged | Certain tax breaks or tax savings included May include restrictions or penalties Examples include: 529 College Savings Account, IRA Has withdrawal restrictions & early withdrawal penalties No tax-loss harvesting |
| Taxable | Highly flexible accounts Use funds for any reason No withdrawal penalties Can apply Tax-Loss Harvesting Has tax implications on dividends, interest payments, and realized capital gains No upfront tax deduction or tax free growth |
How can tax-loss harvesting help in a taxable account?
If you use a taxable account, you can help lower your tax bill with tax-loss harvesting—a strategy that takes advantage of market volatility. How much can this help? When we use each client’s inferred tax rate to estimate their benefit from Tax-Loss Harvesting and compare that benefit to the actual amount they paid in advisory fees, we find that for nearly 95% of clients who have used Tax-Loss Harvesting for at least a year in The Wealthfront Portfolio or direct indexing account, the estimated tax benefit exceeds fees paid.
In short, using a taxable investment account to save for a long-term goal means your savings have a better chance of increasing in buying power and growing significantly—and you’ll also have plenty of flexibility.
Typically, the longer you stay invested, the better the odds that you’ll earn returns.
How are risk, return, and your time horizon connected?
There’s an easy way to think about saving for your goals: risk and return are correlated. The higher the risk, the higher the expected return. This means:
- In situations where you can’t afford to take any market risk, like saving for a short-term goal, you’ll sacrifice higher returns
- When you have a longer time horizon, your willingness to take on market risk can result in higher returns
Which Wealthfront accounts work best for different savings goals?
Wealthfront Cash Account for short-term savings
For your short-term savings, like your emergency fund or what you’re intending to invest in the future, you’re intending to invest, our Cash Account includes:
- A base 3.55% APY provided by program banks
- No monthly account fees
- Up to $8 million of FDIC insurance through our program banks, or 32x more than a single bank
Automated Bond Portfolio for near-term savings
For your near-term savings, our Automated Bond Portfolio can help you earn more than a Cash Account and help you save on taxes.
The Wealthfront Portfolio for long-term savings
For long-term savings, a taxable investing account is a good choice to consider. Our Wealthfront Portfolio makes it easy to build long-term wealth with diversified portfolios of low cost index funds. And every account is optimized to your individual tax level, risk tolerance, and future goals.
The Automated Bond Portfolio and The Wealthfront Portfolio come with our award-winning automation features designed to maximize your after-tax returns and make investing effortless.
Frequently Asked Questions
What counts as a short-term financial goal?
As a rule of thumb, we define a short-term goal as anything in the next year. A vacation you plan to take later this year is one example.
What counts as a near-term financial goal?
We consider a big expense one to three years from now a near-term goal. A down payment for a house is one example.
What counts as a long-term financial goal?
A long-term goal is anything more than three to five years away. Examples include sending a child to college or retiring.
Where should I keep my emergency fund?
It typically makes sense to keep your emergency fund in a high-yield cash account instead of in the market. Financial markets are unpredictable in the short term.
Should I treat a goal four years away as near-term or long-term?
This will depend on your individual situation. You should take into account how flexible your timing is. If you have no flexibility, you may want to treat it as a near-term goal, but if you would be OK waiting another year or so, it’s probably fine to treat it as a long-term goal.
Why diversify across multiple bonds or bond ETFs?
Like investing in equities, one of the best ways to mitigate risk is to diversify across multiple bonds or bond ETFs. Bond ETFs hold a basket of bonds, making them naturally more diversified than an individual bond.
What is the difference between a taxable and tax-advantaged account?
Tax-advantaged accounts come with tax breaks but also have withdrawal restrictions and penalties if you don’t use them according to the rules governing each specific account type. Taxable accounts are highly flexible, can be used for whatever you want, and don’t charge a withdrawal penalty for taking your money out. However, you may owe taxes on realized investment gains, dividends, and interest.
Why invest long-term savings instead of holding them in cash?
The rate of earning on savings or cash accounts, even high-yield ones, or even in bonds has seldom kept up with inflation over the last decade. Investing in equities can help you avoid losing buying power by allowing you to earn a higher rate of return over the long term with added risk.
Disclosure
The Cash Account is offered by Wealthfront Brokerage LLC (“Wealthfront Brokerage”), Member of FINRA/SIPC. Neither Wealthfront Brokerage nor any of its affiliates are a bank, and the Cash Account itself is not a deposit account. The Annual Percentage Yield (“APY”) on cash deposits as of September 18, 2026, is representative, requires no minimums, and may change at any time. References to the APY for the Wealthfront Cash Account, including any APY increase, are to the APY paid by insured depository institutions that participate in our cash sweep program (the “Program Banks”). Wealthfront Brokerage does not pay interest. Wealthfront sweeps available cash balances to Program Banks where they earn a variable rate of interest and, subject to the satisfaction of certain conditions, are eligible for FDIC insurance. A list of current Program Banks can be found here: [www.wealthfront.com/programbanks]. Deposit balances are not allocated equally among the participating program banks. FDIC pass-through insurance is not provided until the funds arrive at the Program Banks, and protects against the failure of Program Banks, not Wealthfront. While cash balances are at Wealthfront Brokerage, and while they are transitioning to and/or from Wealthfront Brokerage to the Program Banks, they are not eligible for FDIC pass-through insurance, but are eligible for SIPC protection, subject to the limit of $250,000 for cash. FDIC insurance coverage is limited to $250,000 for the total amount of all deposits a customer holds in the same ownership capacity per banking institution, regardless of whether those deposits are placed through Wealthfront Brokerage, so you are responsible for monitoring your total deposits at each Program Bank to avoid exceeding FDIC limits. Wealthfront Brokerage partners with more than one Program Bank to make available up to $8 million (or up to $16 million for joint accounts) of FDIC pass-through coverage for your cash deposits. For more information on FDIC insurance coverage, please visit www.FDIC.gov. Customers are responsible for monitoring their total assets at each of the Program Banks to determine the extent of available FDIC insurance coverage in accordance with FDIC rules. The deposits at Program Banks are not covered by SIPC.
Investment management and advisory services are provided by Wealthfront Advisers LLC (“Wealthfront Advisers”), an SEC-registered investment adviser.
Investors should carefully assess the risks associated with bond ETF investments. Bond ETF performance may not precisely mirror the underlying index due to tracking errors from factors like bond weighting differences, transaction costs, and timing. Management fees can affect overall returns. Bond ETFs expose investors to risks, including interest rate risk, potentially leading to capital losses as rising rates decrease underlying bond values. Most bond ETFs lack a fixed maturity date or guaranteed principal repayment at maturity. Bond ETFs may generate capital gains from portfolio rebalancing, potentially resulting in unexpected tax liabilities.
Credit risk is a concern, as bond issuers’ financial health can impact ETF value. Some bond ETFs may use derivatives, introducing counterparty risk where losses can occur if a counterparty fails to fulfill its contractual obligations. Call risk should also be considered, as falling interest rates might prompt callable bond issuers to repay securities before maturity, forcing reinvestment in lower-yield or riskier securities.
Savings accounts are typically FDIC-insured. The Automated Bond Portfolio is covered by SIPC, which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash).It does not provide protection against losses resulting from market fluctuations. Explanatory brochure available upon request or at www.sipc.org.
Bond ETFs are less liquid than cash, potentially affecting buying and selling shares at desired prices. Some may prefer the stability and accessibility of savings or deposit accounts despite lower yields.
Equities may offer higher long-term gains than bonds or cash investments, providing capital appreciation and reinvestable dividend income. However, equities present increased risk due to market fluctuations and short-term price volatility. Investors with longer time horizons and higher risk tolerance may allocate a portion of their portfolios to equities, acknowledging the possibility of gains and losses. Investors should weigh these risks before investing. Past performance does not guarantee future results.”
Wealthfront Advisers and affiliates do not provide legal or tax advice and are not liable for tax consequences of client transactions. Please consult a personal tax advisor. You are responsible for reporting transactions to the IRS or other taxing authorities.
The effectiveness of the tax-loss harvesting strategy to reduce the tax liability of the client will depend on the client’s entire tax and investment profile, including purchases and dispositions in a client’s (or client’s spouse’s) accounts outside of Wealthfront Advisers and type of investments (e.g., taxable or nontaxable) or holding period (e.g., short- term or long-term).
Wealthfront Advisers’ investment strategies, including portfolio rebalancing and tax loss harvesting, can lead to high levels of trading. High levels of trading could result in (a) bid-ask spread expense; (b) trade executions that may occur at prices beyond the bid ask spread (if quantity demanded exceeds quantity available at the bid or ask); (c) trading that may adversely move prices, such that subsequent transactions occur at worse prices; (d) trading that may disqualify some dividends from qualified dividend treatment; (e) unfulfilled orders or portfolio drift, in the event that markets are disorderly or trading halts altogether; and (f) unforeseen trading errors. The performance of the new securities purchased through the tax-loss harvesting service may be better or worse than the performance of the securities that are sold for tax-loss harvesting purposes.
Tax loss harvesting may generate a higher number of trades due to attempts to capture losses. There is a chance that trading attributed to tax loss harvesting may create capital gains and wash sales and could be subject to higher transaction costs and market impacts. In addition, tax loss harvesting strategies may produce losses, which may not be offset by sufficient gains in the account and may be limited to a $3,000 deduction against income. The utilization of losses harvested through the strategy will depend upon the recognition of capital gains in the same or a future tax period, and in addition may be subject to limitations under applicable tax laws, e.g., if there are insufficient realized gains in the tax period, the use of harvested losses may be limited to a $3,000 deduction against income and distributions. Losses harvested through the strategy that are not utilized in the tax period when recognized (e.g., because of insufficient capital gains and/or significant capital loss carryforwards), generally may be carried forward to offset future capital gains, if any.
Nothing in this communication should be construed as tax advice, a solicitation or offer, or recommendation, to buy or sell any security. Any links provided to other server sites are offered as a matter of convenience and are not intended to imply that Wealthfront Advisers or its affiliates endorses, sponsors, promotes and/or is affiliated with the owners of or participants in those sites, or endorses any information contained on those sites, unless expressly stated otherwise.
All investing involves risk, including the possible loss of money you invest, and past performance does not guarantee future performance. Securities investments are not bank deposits, are not bank guaranteed or FDIC-insured and may lose value. Please see our Full Disclosure for important details.
Wealthfront Advisers and Wealthfront Brokerage are wholly owned subsidiaries of Wealthfront Corporation.
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About the author(s)
The Wealthfront Team believes everyone deserves access to sophisticated financial advice. The team includes Certified Financial Planners (CFPs), Chartered Financial Analysts (CFAs), a Certified Public Accountant (CPA), and individuals with Series 7 and Series 66 registrations from FINRA. Collectively, the Wealthfront Team has decades of experience helping people build secure and rewarding financial lives. View all posts by The Wealthfront Team
