Posted on Tuesday 31 July 2012
The reasons for starting a Savings Account are many and varied. Some start accounts right after a baby is born so that they can save for their child’s college education. For others a savings account serves as a “rainy day” for emergencies or unexpected and costly life events, such a damaging storm or economic crisis, which in some cases can be one and the same. There are different types of savings accounts to learn about when deciding the best option for your needs. Be sure to take each one into careful consideration when choosing a savings account that’s right for you.
Basic Savings Account
A Basic Savings Account is also referred to as Passport Savings Account. In popular vernacular it is often referred to as a “Rainy Day Savings Account”. This type account is simple to acquire and easy to maintain.
- No Minimum Balance and Easy Withdrawal: Though some banks or credit unions do require that there at least be some money in the account rather than a zero balance and the bank seldom limits when and how much you can withdraw from the account; although some banks or credit unions may stipulate a limit on the frequency of withdrawals.
- Safer savings: It is safer than storing your savings at home under you mattress, in your dresser or even in a home safe. You home may suffer from an accidental fire or dangerous storm. If your cash is destroyed it is gone forever. But, if you have your funds in a Savings Account the money is insured by the Federal Government.
- Interest Earnings: A Basic Savings Account earns interest. The amount varies according to economic conditions. Essentially the bank or credit union is paying you to use their facilities in exchange for the privilege of using your money for investments. Rather than storing you hard earned money at home, you can watch your money grow in an account.
Money Market Fund
A Money Market Fund works differently than a Basic Savings Account, but it does not require particular effort in the part of the owner of the account.
- Higher interest rate: Interest rates are usually fixed, there for they do not fluctuate with the economy. The interest rates can be as high as 5%.
- Liquid funds: This fund can easily be transferred to another account such as a checking account for overdraft protection or if the account owner finds they need emergency money.
- Security: Withdrawal frequency is limited by the bank, therefore the account owner is encouraged to maintain the account levels better. This limitation can help encourage a better savings strategy for long-term plans such as buying a home or planning a retirement.
Certificate of Deposit
A Certificate of Deposit requires better planning on the part of the account owner, but the dividends for such planning are better.
- Maturity: The CD requires that the money is not withdrawn until the account reaches maturity. The accounts are set for a certain amount of time, which could be anywhere from 6 months to 10 years, depending on the account owners preference. The only potential downfall is that there is a penalty for early withdrawal, but with careful planning this is a negligible issue.
- Higher Interest Rate: CDs often have a higher interest rate based on the planned time of maturity. This rate fixed, therefore it does not change as the economy changes.
- Low Risk Investment: A CD can be made for as low as $500. There are various types of CDs to consider, such as an Expandable CD that allows you to add funds to an account.
There are many choices when considering opening a Savings Account. One should consider their purposes to opening such an account. If the purpose for the account is to save for the short term or to protect your other accounts, a Basic Savings Account is probably sufficient for your needs. If the one is planning for something more long term, than a Money Market Account or Certificate of deposit may be a wiser choice. Ask your financial institution for brochures for their operations. Ask for advice on which plan is best for you. They will be able to show you what the different plans can provide for you with your money needs. Make a wise choice with your money, now.