Where to Put Your Savings Now

Even in good times it's tough to choose between paying down your debt and increasing your savings. But despite the struggling economy these days, Americans are managing to do both. That presents a new conundrum: where to store your growing savings?

Through December 2008, Americans managed to string together three straight months of debt reduction for the first time since 1991. At the same time, we managed to boost our personal savings rate to a national average of 3.6% of disposable personal income in December 2008. That's a significant increase from savings rates in recent years -- including a dip into negative territory back in the third quarter of 2005.

All that extra money getting squirreled away has to go somewhere, and most risk-averse savers are likely to flock to FDIC-insured deposit accounts such as certificates of deposit (CDs), savings accounts and money market accounts. But different accounts are good for different savings goals.

CDs are most useful when you have a chunk of money that you won't need for awhile. They generally offer the highest interest rates of the three types of deposit accounts, but that extra interest comes at the price of reduced liquidity -- you can't withdraw your money until the CD matures without risking an early-withdrawal penalty. (That penalty may equal as much as a few months' worth of interest.) So if you think you might need to access your money before the year is up on your 12-month CD, you may be better off keeping your money in a money market or savings account....