If you’ve created a regular savings account with your bank, you are probably getting a pitiful interest rate (something like .001%). There are other ways to save that give you back a higher percentage of interest.
Money Market Accounts
A money market account is like a regular savings account at your bank; you can take money out of it whenever you want, as long as you don’t go below the minimum you opened the account with. However, it is a mutual fund, so it invests your money in government securities and bonds. The reason you don’t have to wait around for your investments to be turned over to you, like with other mutual funds, is because the bonds and securities the money market account invests in are very short term. Therefore, you don’t have a long waiting period for the payout.
Since the investments are so short-term, you aren’t going to make huge amounts of money. So, your interest rate isn’t going to be all that large. You won’t be getting large interest sums back, unless you’ve put a very large sum into the account. But, some money market accounts have a higher interest rate that others, and all of them have a higher rate than regular savings accounts.
Your bank probably offers money market accounts, but you will most likely get higher interest rates if you create a money market account through a financial services company, such as E*TRADE, or an investment company, like Fidelity Investments.
There are countless companies out there. One of them will be the right fit for you. Make sure you do your research and learn about the company, their interest rates, and the minimum rate you will have to provide to start an account. Also, find a company that suits your budget.
An easy, fast way to find companies and compare rates is www.bankrate.com. This site also helps you find rates for Certificates of Deposit (CD).
Certificates of Deposit
A CD is a lot like a money market account, in that you give your bank a deposit, which they invest in low-risk securities and bonds.
However, there are some differences. First, your bank will give you a specific, fixed interest rate on your investment, and they will insure that rate for a set period of time. So, you are guaranteed that rate, no matter how the market does. Secondly, during the time that the bank insures your interest rate, you cannot take money out of the account.
Like money market accounts, the return is relatively low because the risks are low, but a CD is a great way to get guaranteed savings and growth. However, it may not be a great idea to rely on a CD for your entire nest egg, because you can’t take money out whenever you want. You should at least have one month’s worth of expenses in an account that you can always access.
Still, a CD is a great way to build your savings, if you are the sort of person who is tempted to dig into savings for things you don’t really need, but want. Just because the money is there, doesn’t mean you should use it. Yet, sometimes, that little voice in your head convinces you that you need that new phone or laptop for work, or that new coat for when winter rolls around. A CD will help keep that little voice in check.
You can also use a CD to help you build up a larger nest egg, so long as you have the one month amount already saved away. A CD can help you get a six-month emergency fund with no extra effort.
Another stress free way to start earning interest on your savings is to login to www.treasurydirect.gov, and let the site walk you through buying savings bonds. You can set up an automatic savings system without too much time, hassle, or money.
There are a few different types of government savings bonds to choose from:
- I-Bonds: This stands for Inflation Bonds. The minimum you put in is $25 , which is easy and painless, if you are already paying yourself first. Then, you gain interest based on a combination of a fixed rate and the rate of inflation. Because your interest is based partially on inflation, you rate will fluctuate on an average of twice a year. After one year, you can cash the bond. However, it is best to wait at least five years, because if you cash it in earlier than that, you will lose the last three months of interest. This sort of bond can grow for up to 30 years, so if you are patient, with only $25 you can start creating a nice nest egg for your future.
- Patriot Bonds: Also called EE Bonds, there are just a few differences between them and I-Bonds. They grow for the same amount of time and the rules on cashing them in are the same, but you get a fixed interest rate that is earned monthly and compounded (that means doubled!) every six months. Remember the son who chose the penny? Compound interest is your best friend.
This article was written by The BOSS Network Influencer, Dr. Cozette M. White.
Dr. Cozette M. White is an acclaimed author, financial analyst and tax strategist, speaker, and philanthropist. Not to mention the founder and CEO of My Financial Home Enterprises, a financial management firm helping entrepreneurs and organizations develop solutions that fuel business growth and transform products into accelerating profits.
Learn more about Cozette via her website at http://www.MyFinancialHome.com
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