I Have $5,000 to Invest. Where Should I Put It?

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"A penny saved is a penny earned," says the guy on the hundred dollar bill. Likely an old adage that Benjamin Franklin appropriated, it neatly encapsulates the heart of every sound personal finance strategy: the value of frugality and of budgeting your income wisely.

That said, when you've saved 500,000 pennies ($5,000), plenty of growth opportunities open themselves up to you. Where you put $5,000 will depend on your goals, aspirations, and risk aversion. If you're ready to put that money to work, here are four places where it can work hardest for you.

1. High-yield savings account

In terms of risk aversion, a high-yield savings account is one of the safest options. These accounts earn interest steadily at a certain annual percentage yield (APY). Most are covered under FDIC insurance, and some come with debit cards. This would be a good option if you don't have an emergency fund , or if your current emergency fund doesn't cover three to six months of living expenses.

One risk, however, is missed opportunity. High-yield savings accounts won't grow your money as aggressively as stocks and bonds. They have strong APYs right now, but those rates will fluctuate with changing market conditions. It's the safest place for a $5,000 investment, but the security comes with a high opportunity cost.

2. Certificates of deposit (CDs)

A certificate of deposit (CD) is also a relatively safe investment. I say "relatively" because they do have one notorious risk: early withdrawal penalties.

A CD contract will specify a fixed interest rate and term during which your money is locked up. A 1-year CD will mature after one year; likewise, a 5-year CD will mature in 60 months. During this time, your deposit will grow by the fixed interest rate, effectively bypassing the main problem with high-yield savings accounts (variable rates). But if you withdraw before your CD matures, you'll pay a penalty equal to a certain months' worth of interest.

I'd recommend CDs to anyone who wants to take it easy (i.e., no stocks) and doesn't need immediate access to their savings. You can get a great rate on a CD right now -- check out these CDs in particular -- with the best CDs clocking in above 5.00% APY. With the Federal Reserve likely cutting its federal funds rate this year, rates are beginning to drop like flies: If this is your investment choice, get in before rates really take a dive.

3. Retirement accounts

Another sound financial choice for that $5,000 is to put it into a retirement account, like a 401(k) or IRA.

These accounts have certain tax advantages. Contributions to a 401(k), for instance, lower your taxable income and may end up reducing your tax bill. IRA contributions can also be tax deductible, so long as certain conditions are met.

Both give you the power of tax deferral. This means you don't have to pay taxes immediately on investment gains so long as the investment is held within the retirement account (you'll pay taxes when you withdraw). That said, you have to wait until a certain age before you can withdraw money, or else you might pay penalties and taxes.

4. Brokerage account

A brokerage account gives you access to a wide array of investments, like stocks, ETFs, mutual funds, bonds, crypto, and brokered CDs, among others. This is a good option if you want to grow your money aggressively but don't want it tied up in a retirement account.

Standard brokerage accounts don't have the same tax advantages as 401(k)s or IRAs. But they also don't levy a penalty on withdrawals. You'll pay taxes on your capital gains, but you might be able to offset those with capital losses.

Investing in a brokerage account brings up a good point, something that can be applied to savings accounts, CDs, and retirement accounts, too. Wherever you invest this $5,000, do it with a long-term perspective. You can invest it aggressively or save it more cautiously, but leave it alone for some time. This will help you harness the power of compound interest, which can turn a penny saved into quite a few earned.

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