The onset of the sudden wealth of a lottery win can be emotionally overwhelming, as you will have many decisions to make, including where to save the money. Some experts recommend that you not make any sudden decisions concerning the money, such as financial gifts or potentially risky investments. You have several options available to save and invest the money, and can lean toward more conservative options while you determine your long-term plans.
While any lottery win is going to have a good impact on your bottom line, not all winnings are created equal. Your choice of investments will probably be different with a smaller win of $150,000 than if you win a larger lottery jackpot worth hundreds of millions of dollars. With the larger jackpot, principal growth with risk is more of a luxury, as you can invest the principal in very low-return and low-risk investments and still earn a substantial annual income to fund a luxurious lifestyle.
Bank deposit accounts are a good place for a portion of your lottery winnings. The accounts are liquid, so you can withdraw money regularly. A certificate of deposit allows you to earn a higher interest rate, but you must promise to keep the money in the account for a specified period of time or pay a penalty. Your total deposits in any bank insured by the Federal Deposit Insurance Corporation are insured up to $250,000 per depositor, per bank, as of April 2013. However, by using the Certificate of Deposit Account Registry Service, you can protect much higher amounts, up to several million dollars, and only use one bank.
U.S. Treasury securities include Treasury bills and bonds, as well as the traditional savings bond that the government sells to finance government debt and debt repayment. Treasury bonds have a longer term than bills, which usually mature in one year or less. Treasury securities are backed by the U.S. government, so they are considered to be a safe investment for large sums of money. These securities are sold through auctions and on the secondary market by brokers. The interest rates are generally competitive with other conservative investments. Furthermore, U.S. Treasury earnings are free of state and local income taxes.
High grade municipal bonds are debt instruments sold by local governments to finance construction and other capital improvements. These investments may pay lower interest rates, but the incentive to invest in them, besides the relative safety of the higher grade bonds, is that the earnings are free from federal income taxes.
While preserving the principal amount of your lottery winnings is a good goal, inflation, over time, can shrink the purchasing power of your money, creating a significant problem, particularly with a smaller lottery win. By allocating a portion of your winnings to stock market investments, you can help lock in the higher growth that stocks are likely to provide over time. Investing in well diversified mutual funds can offset some of the higher risk carried by individual stocks, and also boost your winnings over time.
While investment decisions with lottery winnings are important, what to ultimately do with the money is a big consideration as well. With a larger jackpot, particularly if you make wise investment and spending decisions, you may never spend all of the money. Consider making a sizable contribution to your favorite charities, or even endowing a local program or institution within your community. The good that you do could last for decades.