Managing Your Savings Wisely
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In the first two parts of the Managing Your Savings Wisely Series we discussed the importance of paying yourself first and setting savings priorities. Both are key steps toward saving for tomorrow - and both are easy to accomplish. (Discover how -- read part 1 and part 2 in the series). Once you know what you're saving for and you've identified basic steps toward achieving these savings goals, it's time to roll up your sleeves and examine the big 'O' - Options.
As you know, there are an abundance of savings account options to choose from. Don't develop a headache when trying to decide which savings accounts best speak to your goals. This basic outline of the main types of savings accounts to consider will help differentiate one kind of account from another. And remember to check out the Banking and Loans Center for the latest rates, loan information and more. It's fast, easy, and will save you many a trip to the old brick-and-mortar banks!
You can shop around for the best high-yield savings rates available. Also, consider online savings accounts. Online banks are able to keep rates relatively high by limiting the ease (and speed) with which you can draw on your funds: There's no check writing or ATM access. To access your cash, you transfer it online or by phone to a brick-and-mortar checking account. Look for the FDIC logo. If putting your cash in a virtual bank account makes you uncomfortable, remember that up to $100,000 is protected in a bank insured by the FDIC. Check to see if your local bank, the one you feel comfortable with, offers an e-savings account.
Money Market Accounts
While similar to a traditional savings account, a money market account (MMA) differs in several ways. Typically, MMA's require a higher minimum balance but pay higher interest rates. They limit the number of withdraws you can make but many will allow you to write up to three checks each month. Fees may be incurred if you fall below the minimum balance or make too many withdraws.
CDs (Certificates of Deposit). This is a savings account set up for a specific amount of time to earn interest, usually at a faster rate than a regular savings account. You can only access your money after a certain amount of time. If you take your money out earlier than the maturity date, you usually have to pay a penalty.
Interest Checking Accounts. Although a checking account that pays interest may appear more attractive than one that does not, it is important to look at fees for both types of checking accounts. Often checking accounts that pay interest charge higher fees than regular checking accounts, so you could end up paying more in fees than you earn in interest.
Mutual Funds. Mutual funds can offer the advantages of diversification and professional management. But, as with other investment choices, investing in mutual funds involves risk. Mutual funds are not guaranteed or insured by the FDIC or any other government agency - even if you buy through a bank and the fund carries the bank's name. You can lose money investing in mutual funds.
Most mutual funds fall into one of three main categories - money market funds, bond funds (also called "fixed income" funds), and stock funds (also called "equity" funds). Each type has different features and different risks and rewards. Generally, the higher the potential return, the higher the risk of loss.
Short-term Bonds. Basically, these are bonds with a maturity of between one and five years. For example, a Municipal Bond (aka 'muni') offers investors tax-friendly income.
Stocks. Simply put, stock is a share in the ownership of a company. As a shareholder, you can own a piece of the company's assets and earnings. There are countless stocks to choose from and the risk level can vary tremendously.
401(k) Plan. These employer-sponsored retirement plans allow you to save for retirement while deferring income taxes on the saved money and earnings until withdrawal.
IRAs (Individual Retirement Accounts). Do you want to save on taxes today (traditional IRA) or in retirement years (tax-free Roth IRA)? Use this calculator to see which one might be best for you.
Now that you've more clearly identified which savings options work for you, remember to safeguard your assets. Part of a smart savings plan is protection. Subscribe to Equifax Credit Watch™ Gold or Silver and get an early alert to key changes to your Equifax credit report - that may be an early warning sign of identity theft.