In the first two parts of the money management tips series, we discussed the importance of paying yourself first and setting savings priorities. Both are key steps toward saving for tomorrow – and both are easy to accomplish. (Discover how by reading parts one and two: Pay Yourself First and Build Your Savings Pyramid).
Once you know what you’re saving for and you’ve identified basic steps toward achieving these savings goals, it’s time to roll up your sleeves and examine your savings options.
There are an abundance of savings account options from which to choose, but don’t stress over trying to decide which savings accounts best match your savings goals. This basic outline of the main types of savings accounts to consider will help differentiate one kind of account from another.
Remember to check out the Banking and Loans Center for the best interest rates, loan information, and more. It’s fast, easy, and can save you a trip to the old brick-and-mortar banks.
Savings accounts aren’t offering very high rates right now, but they’re still a good place to keep short-term, liquid savings. (Remember the savings pyramid?) Consider online savings accounts.
Online banks are able to keep rates relatively high by limiting the ease (and speed) with which you can draw on your funds; there’s usually no check writing or ATM access with online savings accounts. To access your cash, you transfer it online or by phone to a brick-and-mortar checking account.
Always look for the FDIC logo. If putting your cash in a virtual bank account makes you uncomfortable, remember that up to $100,000 is protected in an FDIC insured bank. To start, check to see if your local bank or credit union offers an e-savings account.
Money market accounts
While similar to a traditional savings account, a money market account (MMA) differs in several ways. Typically, MMAs require a higher minimum balance but pay higher interest rates. They limit the number of withdrawals you can make, but many will allow you to write up to three checks each month. Fees may be incurred if you fall below the minimum balance or make too many withdrawals.
Certificates of deposit
Certificates of deposit (CDs) are savings accounts set up for a specific amount of time to earn interest, usually at a faster rate than a regular savings account. You can only access your money after a certain amount of time. If you take your money out earlier than the maturity date, you usually have to pay a penalty.
Interest checking accounts
Although a checking account that pays interest may appear more attractive than one that does not, it is important to look at fees for both types of checking accounts. Often, checking accounts that pay interest charge higher fees than regular checking accounts, so you could end up paying more in fees than you earn in interest.
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