Where to Stash Your Savings

Kyle Crowe

July 23rd, 2015 | Posted in Carly White
stash-savings

If you aren’t putting your money into some kind of savings account, you’re making a big mistake. Putting your money into savings allows you to earn interest of the funds you aren’t using – so if you have extra cash just sitting in your checking account or in the piggy bank in your bedroom closet, there are better places for it that will earn you extra money.

Before opening a savings account, it’s a good idea to determine how you’ll be using the account. Some factors that will impact the interest you earn are 1) how long you will be keeping the money in the account, 2) how much money you will put in the account to begin, and 3) how often you will want to withdraw funds.

Not all savings accounts are created equal; different banks and institutions will offer different interest rates, and each bank usually has several savings options to choose from.

As a general rule, time is money: the more money you put in and the longer the bank gets to hold your money, the more interest you will receive. The easier it is for you to withdraw money, the less interest you will earn.

1) Basic Savings Accounts – you can set these up at the same bank you use for your checking accounts, but the offer the lowest interest rates, at less than 1%. There are few, if any, restrictions on access to withdrawing your money, and they require very small minimum balances. It’s a great way to start a savings account if you don’t have much to begin with. Credit Unions, which are ‘owned’ by customers, tend to offer higher interest rates on savings accounts.

2) Money Market Accounts – these are high-yielding savings accounts that earn you interest based on the current market interest rate. They’ll earn you more, but they also require higher minimum balances, and you’re limited to how often you can withdraw funds.

3) Online savings accounts – very similar to basic accounts, but they offer higher interest rates because they operate online only and don’t have the overhead costs that standard banks have.

4) CDs – offering the highest interest rate of any savings accounts, Certificates of Deposit (CDs) are the best option if you have money you don’t mind leaving in savings for a long period of time. Options range from several months to several years, and you can’t withdraw your money early unless you pay a steep penalty. Being FDIC insured, they are risk-free, and don’t require fees. There are many types of CDs; stock-index CDs, based on the stock market; callable, offering higher rates for 10-15 years but subject to the bank “calling” the account if interest rates drop; and global, based on currency rates. “Bump” CDs give the option of a no-penalty withdrawal as well as a one-time chance to readjust the interest rates on your CD, but they pay significantly lower interest rates. Higher-yielding Traditional CDs are a better option if you don’t need the money for a while.

You can also try rolling CDs to have your accounts mature more frequently – read here for more info: http://online-stock-trading-review.toptenreviews.com/how-to-prepare-for-the-future-with-rolling-certificates-of-deposit.html

(Note: be careful, because there is usually only a 7-10 day grace period to remove your money from an auto-renewing CD; if you miss it, you’ll be penalized for removing money that has been rolled into a new CD.)