If you’re looking to improve your finances, saving money is a great place to start. Many financial experts recommend creating an emergency savings fund with at least six months’ worth of living expenses. And it’s wise to save money toward other financial goals, such as college or retirement, as well.

If you can’t afford to sock away thousands of dollars right now, that doesn’t mean you should ignore the need to put away money for the future. Even $1,000 could make a meaningful difference in your financial well-being.

Here are eight smart ways you can put $1,000 in savings to work for you.

1. Start an emergency fund

Although your ultimate plan for an emergency fund might be to tuck away six months’ or more worth of living expenses, it’s OK to aim smaller at first. Many financial experts agree that saving $1,000 is an excellent initial goal when you first begin your journey to build an emergency fund.

If you’re trying to kickstart your first emergency fund, consider participating in a $1,000 savings challenge. This idea could be a great way to build momentum if you’re facing a tight budget or even if you just need to get back in the habit of saving money each month.

2. Open a high-yield savings account

Whether you decide to save $1,000 for emergencies or some other purpose, it’s wise to make sure your money earns as much interest as possible. So, instead of merely depositing your $1,000 into a regular checking account or a traditional savings account, consider opening a high-yield savings account (HYSA) instead.

The best high-yield savings accounts often come from online banks that tend to offer higher annual percentage yields (APYs) compared to traditional banks, which could help you grow your savings at a faster rate. Plus, keeping your savings in a separate account might reduce the temptation to spend it.

3. Open a certificate of deposit

A certificate of deposit (CD) is another type of deposit account you can use to store your $1,000 in savings — especially if you prefer to avoid risk when it comes to your cash. CDs aren’t a perfect fit for everyone, but they might work for you depending on your savings goals.

With CDs, you agree not to withdraw the money you deposit for a specified period, known as the CD’s term. If you take money out of your account early, you’ll have to pay a penalty. However, in exchange for this arrangement, the best CD rates tend to be competitive and remain fixed (aka they don’t change) until your CD matures. That can be particularly helpful when deposit rates are falling.

You might want to consider a CD if you’re looking for a safe place to save your money for short-term or medium-term goals. But if you want access to your cash sooner rather than later, a high-yield savings account or money market account might be a better fit.

4. Try to earn a bank bonus

Some financial institutions may offer a bank account bonus to customers who open a new checking account, savings account, or other type of eligible deposit account. So, if you have an extra $1,000 to save, you might be able to use those funds to open a new bank account and qualify for a one-time cash bonus of a few hundred dollars.

Of course, it’s important to read the fine print of any bank account bonus offer to make sure you qualify. To receive a bonus, you might need to maintain a minimum balance in your new account for a certain number of days. Other offers might require you to make a specific number of qualifying transactions before you become eligible for your bonus.

You should also review the details of the bank account you’re opening to make sure it meets your financial needs. Some accounts that offer new customer bonuses may come with bank fees as well, though there may be ways to get certain fees waived. It’s important to confirm you’re comfortable with any monthly costs a financial institution will charge you, or at least be sure you understand how to close an account without jeopardizing your new customer bonus.

5. Buy an index fund

Another potential way to put $1,000 of extra money to work for you is to invest the cash in an index fund. For example, an index fund that tracks the S&P 500 (Standard & Poor’s 500) is diversified to include a collection of stocks from the 500 largest companies in the United States.

With the S&P 500 index in particular, the fund has a historical average return of around 10%. This type of index fund might be a good pick if you’re new to investing.

Index funds tend to be less volatile than individual stocks. But anytime you invest — even in an index fund — it’s important to understand that there is some level of risk involved.

6. Pay down your credit card balance

Depending on the amount of debt you owe, $1,000 may not be enough to wipe out your credit card balances completely. As of 2024, the average credit card balance is $6,699 according to the credit bureau Experian.

Still, paying $1,000 toward your credit card debt can make a difference in your credit score and your budget. Depending on your situation, you could apply any extra cash you have toward paying down credit card debt in one of the following ways.

• Debt snowball: Pay down credit card balances with the lowest balances first.

• Debt avalanche: Pay down credit card debt with the highest interest rates first.

In either scenario above, you could start to build positive momentum toward reducing your debt. If you’re able to take other positive steps like cutting expenses or increasing your income, you may be able to find more money in your budget to pay down your credit card debt as well.

Read more: The best ways to pay off credit card debt

7. Contribute to a retirement account

Another smart use of extra savings could be to add it to a retirement account. In particular, it’s wise to take full advantage of any matching funds your employer makes available. Otherwise, you could essentially be passing up on the chance to receive free money. And when you deposit your savings in a 401(k), your money has the potential to grow tax-free and compound until you withdraw it.

If you don’t have access to an employer-sponsored retirement plan, however, the good news is there are alternatives available. For instance, you can open an individual retirement account (IRA) on your own and contribute your extra savings there. For 2024, you can contribute up to $7,000 per year into an IRA, or $8,000 per year if you’re 50 or older.

8. Open a 529 plan

As a parent, another option you could consider if you have an extra $1,000 is to put those funds away for your child’s college education. One popular way parents save money for college is by using a 529 plan.

A 529 plan is a tax-advantaged savings plan that could make it more affordable for parents to pay for their child’s college education. When you use a 529 plan for eligible expenses, your contributions can grow tax-deferred, and any withdrawals you make may be tax-free (as long as you use them for qualified education expenses). Plus, after 15 years, you can roll any unused money from a 529 plan into a Roth IRA for the beneficiary (up to $35,000).

Bottom line

You don’t need to have thousands of dollars available before you create an emergency fund or start saving money for retirement. Even a small amount of money ($1,000 or less) could start you down a better financial path.

What’s important is to review your budget and create a habit of spending less than you earn. As you begin to consistently save money each month and avoid overspending, you should put yourself in a better position to pay down debt, save money, and create an overall more secure financial future.

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