U.S. drivers are spending approximately 90 cents less on a gallon of gas than they were a year ago. That can easily be more than $10 a tank. If that’s you, what are you doing with that money?

If you’re like many Americans, you’re not spending it; you’re saving it. As my colleague Russ Koesterich has pointed out, the U.S. savings rate since November has risen, from 4.4 percent to 5.3 percent.

Are you saving for a bigger purchase, such as a car, vacation or even a home? How long do you think it will take to reach your goal?

What big purchase or expense are you saving for?Join in >

Rethink the safety of cash

Unfortunately, it could take longer if you keep your money in low-interest cash accounts and money market funds that barely earn a penny on the dollar. In fact, you may actually lose money after taxes and if inflation continues on its 1.7 percent climb*.

Truth is that many people may be holding more money in cash than they need to. Americans interviewed for BlackRock’s 2014 Global Investor Pulse Survey said they should hold about 29 percent of their investible assets in cash. But when you add in money market and other low-interest-bearing accounts, they actually hold an average 63 percent. And over half of these savers said they plan to contribute more to these types of accounts.

Of course, there’s always a place for cash. Not only do Americans want to keep their money safe and secure, they also want easy access to it. But if you’re saving for something special, you may be able to improve returns by taking careful inventory of all your cash assets and determining when you’ll actually need to spend it. For mid- to long-term goals, you may be able to earn a better return with minimal risk, and still get to your money when you need it, through bond exchange traded funds (ETFs)[i].

Buckets of savings

I recommend that savers look not only at their traditional bank accounts, but also at their cash holdings in retirement and other investment accounts. Then divide this cash into three investment buckets based upon their needs and goals:

  1. Now—Money for everyday bills and unplanned expenses that’s typically held in money market funds or federally insured bank accounts.
  2. Sooner—Funds not planned for immediate use but that need to be available in the near future, for example six to 18 months. This could be short-term savings for a vacation, a car or other upcoming, larger expenses. Investments in this tier would seek higher yields while seeking to minimize risk of losses.
  3. Later—Savings held for more than 18 months. This bucket could serve to diversify a broader portfolio dedicated to longer term goals, such as a home or education. It aims for more income than very short-term investments, with the chance for capital appreciation, but also with greater volatility.

For buckets two and three, bond exchange traded funds (ETFs), with short- to very-short maturities, have historically achieved better returns than traditional savings accounts and may help you reach your financial goals faster.**

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