Just Got an Inheritance? Here’s the Smartest First Move

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Why You Shouldn’t Rush Big Financial Decisions After an Inheritance

When coming into money, the first advice experts give is to think before acting. Receiving a windfall is a rare, potentially transformative occasion. Use it wisely, and the quality of life of the recipient and their dependents could be greatly improved.

Unfortunately, rationality and inheritance don’t always go hand in hand. These can be emotional moments. There will likely be sadness that your benefactor passed away, and maybe tension within your circle of family and friends. Perhaps a sibling or cousin is annoyed they didn’t get the same, friends are asking you for loans, or your spouse or parents are telling you what to do with the windfall. All of this can cloud your judgment and lead to decisions you may regret in the future.

A clear head is one requisite. Another is exploring all of your options. To achieve the best possible outcome, consider speaking to a financial professional, who can help advise you on how to achieve your objectives with the money or assets you inherited while minimizing taxes.

“One of the first things I tell clients is to allow yourself the time and space to decide how you will proceed,” said Marguerita Cheng, a certified financial planner and CEO of Blue Ocean Global Wealth. “Susan Bradley of the Sudden Money Institute refers to this as the ‘Decision Free Zone.'”

According to Cheng, during this period of reflection, it’s important to seek expert advice, understand the tax implications of inheritance, complete all estate settlement paperwork promptly and correctly, review your financials, determine your wants and needs, and, if applicable, learn about any non-cash assets you inherited. Only after taking these steps, she said, should you begin deciding how to use the inheritance.

Smart Ways to Park Your Windfall While You Plan

While you decide what to do with the cash you inherited, consider putting it somewhere where it can earn some money and keep up with inflation. The key here is not just getting the best possible return. You also want to make sure you can easily access the money without penalties or the risk of adverse price fluctuations. That generally means initially putting the money in bank accounts rather than the stock market.

“Don’t take market or ‘credit’ risk,” said Scott Bishop, managing director and co-founder of Presidio Wealth Partners. “I am about measuring twice and cutting once. I’d rather give up a short-term return while coming up with the plan versus investing the money and having to liquidate after a market correction.”

The most obvious choice for earning a solid return while keeping your money liquid for future plans is a high-yield savings account. Our daily ranking of the top high-yield savings rates offers 15 options that pay 10–12 times more than traditional banks. With these accounts, you can deposit and withdraw as you like, while earning an inflation-beating return.

If you know you won’t need the money for a few months or longer, a certificate of deposit (CD) is another smart option. CDs let you lock in a guaranteed rate for a set period—anywhere from a few months to several years—and the top offers pay over 4.00% APY.

With a large inheritance, you might keep part of your funds in a high-yield savings account for flexibility and put another portion in a CD to grow. This approach also makes it easier to resist dipping into your inheritance too quickly.

What to Do Next With Your Inherited Money

There is no fixed rule on how to spend or invest inherited money. It depends on personal goals and circumstances as well as the amount inherited. Financial advisors generally advise people to first focus on paying down any debt, investing adequately for retirement, and, if applicable, saving for their children’s future before treating themselves. These aren’t fun choices, but they will make you thankful in the future and put less strain on your daily finances.

Bishop recommends spending the money with the person who gave it to you in mind, asking yourself what they would have wanted you to do. If you are struggling financially, then getting out of debt and saving for your family’s future, he said, is one of the most obvious ways of doing that.

“[Inheritance] is a gift of someone else’s life’s work,” Bishop said. “Something where they may have wanted to leave a legacy. It is not ‘found’ money (like gambling winnings or the lottery)… and I think you should show how thankful you are by doing something that would make the person happy or proud.”

Another way to honor the deceased person, said Bishop, is to buy something to remember them, or go on vacation to somewhere they would want you to see.

“I had a small inheritance from my mother,” he said. “She asked us all to buy something to remember her by. I bought a watch that I still have 20 years later. Each time I put it on, I think of her.”

How We Find the Best Savings and CD Rates

Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide and determines daily rankings of the top-paying accounts. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the account’s minimum initial deposit must not exceed $25,000. It also cannot specify a maximum deposit amount that’s below $5,000.

Banks must be available in at least 40 states to qualify as nationally available. And while some credit unions require you to donate to a specific charity or association to become a member if you don’t meet other eligibility criteria (e.g., you don’t live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.