11 Better Things to Do With $10,000 Than Hoarding It in Your Checking Account

saving money, investments

You’ve worked hard all year and built up an emergency fund in addition to saving enough in your 401k to get the employer match. After patting yourself on the back for saving well, you realize that an extra $10,000 is languishing in your checking account, which pays a paltry 0.25 percent in interest.

After one year, your $10,000 balance will grow to $10,025. You can do better. Check out these 11 ways to get your $10,000 to earn more.

Read: 9 Steps to Saving a $10,000 Emergency Fund

1. Invest in Peer-to-Peer Lending

With the new sharing economy, investors have the opportunity to act as lenders. Here’s how it works: Borrowers sign up with a platform, select a loan amount and describe where the funds will go in listings that get posted. Investors sort through these listings and lend money to individuals and small businesses that they expect will produce the biggest returns.

Instead of getting an annual $25 return on your $10,000 checking account balance, investing the same amount in platforms like Lending Club or Prosper can fetch returns as high as 8 percent over time. “Many platforms let you diversify and limit risk by investing a small amount of money in many different loans. That way, if a few borrowers default, it may not affect your overall investment too much,” said Priyanka Prakash, a financing specialist at FitBizLoans.com.

Investors should understand that this investment, like most others, carries risk and is not insured or guaranteed.

2. Sell Covered Calls

Here’s a way to invest in the stock market and stack an additional return on top of the stock dividend payment and capital appreciation that a stock owner enjoys. Selling covered calls is a strategy in which you buy a stock and then sell a call option against the stock for income.

Mike Scanlin, CEO of Born to Sell, said that a call option is a security that obligates the seller of the call option to sell stock at a certain price (called a strike price) by a particular date if the buyer chooses to exercise his or her right. For example, you buy AT&T stock, which pays a 5 percent annual dividend. You can sell one call option for every 100 shares you own.

As long as the stock price doesn’t reach the strike price and the call option buyer doesn’t exercise his or her right to buy, you can repeat this strategy over and over for a potential annual income of 10 percent or more. As long as you own the stock, you continue to earn the 5 percent dividend payment as well.

Keep in mind this strategy carries risk. You could lose money if the stock price falls and you are forced to sell.

3. Open a Roth IRA

This retirement investment account allows your annual contribution of $5,500, or $6,500 if you’re over age 50, to grow tax-free for your lifetime and to continue during your heirs’ lives as well. Jeff Jones of Longview Financial Advisors gave this example about the power of compounding: A 30-year-old man can make a one-time $5,500 Roth IRA contribution, and with a 7 percent annualized return, he will have $58,721 by the age of 65.

Even better, contributing $5,500 to a Roth IRA annually between ages 30 and 65 can get you a fat nest egg of $813,524 with 7 percent annually compounding returns. Keep in mind that you would pay a 10 percent penalty on top of taxes due for unqualified earnings withdrawals before age 59½.

Related: 5 Reasons Why You Need a Roth IRA

4. Invest in Municipal Bonds

Municipal bonds are loans to a city or state in order to finance capital projects. As long as the bond meets certain guidelines, the dividend payments are exempt from federal taxes as well as most state and local taxes as long as you live in the state where the bond was issued. In addition to the tax benefits, the tax-free yields range from 1 percent to 3 percent.

Matt Burkart, a client relations manager at Frazier DeCamp Financial, said that investors might want to look into a municipal bond fund for their state instead of buying individual municipal bonds, which can require a high minimum purchase amount. If investors will need the money soon, they should consider a bond fund with one to three years’ maturity or duration. For security, choose higher-rated bonds to minimize the chances of default.

5. Start a Business

If you’re looking for a proven business concept, consider buying a franchise. Some go for as low as $5,000 or $10,000. Harrine Freeman of H.E. Freeman Enterprises said that investing in a profitable franchise concept “may be able to general revenue and income immediately.” She also said that startup costs might be lower with a franchise than with building a business from scratch.

On the negative side, most businesses fail in the first year. Also, you will need extra cash on hand for operational, administrative and unexpected expenses.

6. Invest in Exchange-Traded Funds

For money that you won’t need to touch for at least five years, investing in the stock market can provide returns much higher than that of a checking account. For example, the Standard & Poor’s 500 index earned 7.6 percent annually from 2005 through 2014. If you purchased $10,000 worth of shares in the Schwab S&P 500 (VOO) exchange-traded fund, or in other comparable funds, that $10,000 would be worth $20,803 with a 7.6 percent annualized return over 10 years.

If you left the $10,000 in your checking account with a 1 percent return for 10 years, you’d have an $11,046 balance. However, keep in mind that stock market returns are not guaranteed and will fluctuate over time.

7. Choose Certificates of Deposit

You can maximize the returns on your $10,000 even if you expect to need those funds in the near future. Brent D. Dickerson, a certified financial planner at Trinity Wealth Management, said a certificate of deposit will give you a better return than a checking account. For example, you can secure a one-year CD today with a 1.25 percent return or a five-year term for a 2.25 percent return.

Related: What Should I Do With $50,000 Coming Out of a CD?

8. Pay Off Your Debt

If you’re carrying student loan debt with a 7 percent interest rate, and you have $10,000 languishing in a checking account, you are losing money.

Let’s say you have $10,000 in debt with an interest rate of 7 percent. You’ll pay $700 in interest charges. Keep the $10,000 in a checking account earning 0.25 percent interest and you’ll get $25. That’s a net loss of $675. By paying off the $10,000 debt, it’s as if you’re earning a 7 percent return.

9. Invest in Real Estate

You can use part of your $10,000 for a down payment on a rental property in a low cost-of-living region. Or you can consider real estate investment trusts (REITs) to tap into the real estate market.

An REIT is a company that owns or finances income-producing real estate. REITs provide investors with regular income streams, diversification and long-term capital appreciation. You can buy a REIT in the same way that you’d buy a mutual or exchange-traded fund.

The Vanguard REIT ETF (VNQ), a comprehensive REIT exchange-traded fund, had one-year, three-year and five-year returns of 2.48 percent, 11.64 percent and 12.37 percent respectively.

10. Give It Away

You’ve heard the adage, “It’s better to give than to receive.” Research substantiates this. Stephen Post, PhD, and Jill Neimark elaborate on the benefits of generosity in their book, “Why Good Things Happen to Good People: How to Live a Longer, Healthier, Happier Life by the Simple Act of Giving.” If you’ve met your own financial goals, choose charities that are meaningful to you and give some or all of your $10,000 away.

11. Do Something For Yourself

After you’ve met your financial obligations, and you’re on the right track for securing your financial future, consider doing something for yourself. Add to your skill set by taking additional educational courses in your field. Or learn something new.

Plan a memorable experience by taking a meaningful family vacation. Building up memories pays a lifetime of returns. Consider buying art or planning a home redecorating project. You’ll get immediate pleasure and your purchases might appreciate in value as well.

Finally, Dickerson said that it’s important to consider your short-term and long-term goals when diverting $10,000 from a checking account to another use. Once you have a financial plan, you can invest or use the money in a way that aligns with your goals and values.

Barbara Friedberg loans funds through Lending Club and Prosper.