Wednesday, September 1, 2010

Where Should I Keep My Savings?

When making the decision save, it is good to have goals in mind. However, an important part of saving is almost always overlooked – where to keep the money so that it works for you. There are many different types of accounts that you can use to gain interest on your savings account and make your money work for you.

* Savings accounts are available at your local bank. Most banks have different types of savings accounts and rates that vary depending upon the amount that is deposited. The annual percentage rates are usually low, with interest being paid quarterly. If you are looking for a long-term, high interest yielding investment, you might want to skip the savings account in favor of a certificate of deposit.

* Certificates of deposits, or CDs, are a type of investment tool that requires the investment to be held for a specific time frame. If you invest in a certificate of deposit, your money will be on hold until the time expires. You will be able to withdraw the money early, but a penalty will apply. Interest will be credited according to the agreement, but all interest will be lost if the withdrawal is made before the CD matures. Placing your money in a CD is not a good idea if you wish to have unlimited access to the money.

* Savings bonds are a type of bond that is issued by the government. They are backed 100% and typically take 20-30 years to mature with interest accumulating every month. However, they can be cashed in at any time with no penalty; you just will not earn the extra interest. Savings bonds can be purchased online as well as through your bank.

* IRAs are designed for retirement. Investments are typically held until the depositor reaches retirement age. The money will hold a severe penalty if withdrawn early, but there are exceptions. Taking money out for educational purposes or buying a house, for example, are not penalized.

* Money markets are held at your local bank as well. Money markets usually require higher balances and the access to the money is limited, although not as limited as a CD. Most money market accounts allow only a limited number of withdrawals per period, usually per quarter. The plus side of a money market is that it tends to yield higher interest due to the higher amounts required for deposit.

There are many different types of savings methods available. There is no wrong way to invest your money. A typical low interest yielding savings account is good if you want unlimited access to your money. If you are interested in investing long term only, you might consider a savings bond or an IRA. Whichever route you decide to go, do your research first so you know exactly what to expect. You can always change your mind at a later date, although you may pay a penalty.

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