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Saving and investing are two different things. When you save you earn interest, when you invest, your money makes money. Saving is for the short term, investing is for the long term. Together, they keep you covered and prepared.

When it comes to saving, work toward putting enough money away so you have about three to six months of expenses in your savings account. It’s considered an emergency fund and will pay for that unexpected engine repair or replacing the washing machine when it breaks down. Keep feeding the account so it maintains the balance. This is meant to protect you if you lose or quit your job and need time to find another one. An emergency fund of this size helps you sleep well at night because you know you are prepared for what might happen.

You will want quick access, without penalty, to this money, yet you want to earn as much interest on it as possible. So place your emergency fund in a money market fund, which is very safe. Money market accounts pay higher interest than savings accounts, so you will know your money will be parked in a fund that will keep growing at least with the rate of inflation.

Money markets are really mutual funds of cash investments like U.S. Treasury bills, CDs, and cash, and are managed by professional money managers. They pay more than bank savings accounts and often more than bank short-term CDs. They also allow you check-writing privileges. Some mutual fund companies that offer money market accounts will waive the initial investment for investors who set up a regular investment plan such as $25 or $50 per month.

Call several mutual fund companies to see if you can invest with them this way and compare the rates of return before you decide. You can find these rates in your newspaper or at www.bankrate.com.

Since you probably won’t need all of your emergency reserve at one time, you may wish to buy some CDs of three to six months’ duration. Choose several CDs with different maturities, or expirations, in order to avoid paying penalties for cashing them before their maturity dates. You can also buy CDs from stockbrokers. They may be able to find some with higher interest than your bank because they “shop” banks and find the best rates. Just be sure that the CDs you buy are FDIC insured.

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