Money saving is a matter of making current money available for future use. It is often clear that you will have a future expense of more importance than many things you can presently buy. You may want to save money for a variety of future needs from college tuition to a new home to retirement. Whatever reason you may have for wanting to save money, banks offer a variety of money saving mechanisms. Each of these methods caters to a different set of needs you may have.
1. Savings accounts provide you with a great deal of liquidity. That means that almost any time you need access to the money for some sort of an emergency, you can go to an ATM or in a bank and withdraw it from your savings account. Of course, the downside of this is the temptation to use your money before you really need to use it.
Most savings accounts require a minimum balance. In return, the bank pays you a small amount of interest on your deposits. Many banks will charge you a hefty penalty that will more than offset any interest if your balance gets too low or if you make too many withdrawals per month.
2. Checking accounts are an even more liquid asset. You can withdraw money or simply write a check. Many banks now also offer interest on your checking account balance, provided you maintain a minimum balance. It can be a very convenient way to earn interest, but you may not find yourself saving a lot of money.
3. Money market accounts are a type of bank deposit offering much higher interest rates than savings and checking accounts. While a money market account still offers plenty of liquidity, your interest rate is dependent on the amount of money you keep in your money market account. The more money you keep in your money market account, the higher your interest rate.
4. A certificate of deposit (CD) is a time-based deposit. It is like making a loan to your bank. You are not eligible to get the money back from the bank until the time period agreed to lapses. This time period usually ranges from six months to five years. In an emergency you can usually still withdraw the money, but not without significant financial penalties. When looking for the best CD rates available, always make sure that you’re looking from a list of FDIC banks. Having FDIC insured funds is more important now than it ever has been. This same rule holds true when searching for savings account rates as well as the best checking accounts.
If a bank doesn’t offer you a good enough rate on your CD, there are other companies that from time to time raise money by offering CDs or short-term bonds. Insurance companies often offer much better interest rates than banks. So make sure before you lock up your money in a CD you search for the best rates.
