So, you know you need to save money (…who doesn’t?), but you might be wondering where you’re supposed to physically put all of that money. The bank, sure, but …where?
We’ve got you covered.
Two of the main types of savings vehicles are a standard savings account as well as what is known as a Certificate of Deposit (or CD, for short).
Let’s start with the one you’re likely most familiar with: savings accounts.
Savings accounts are accounts you can open at a bank or other financial institution that offer interest. They are great accounts for individuals who might be looking for a safe place to store their cash so they can access or withdraw funds (without any tax or other penalties) at any time. Most individuals have savings accounts that they can then use or access to use for day-to-day expenses or to fund emergencies or other short-term obligations.
The main benefits of a savings account?
- They offer interest (vs. checking accounts)
- They are highly liquid (you can withdraw the funds at any time)
- They help facilitate saving and may help you reach your savings goals
- They offer protection – as all savings accounts are FDIC (Federal Deposit Insurance Corporation) insured up to $250,000 per depositor so you’re protected should the bank or financial institution ever fail.
The downside of a savings account? They typically don’t offer high-rates of interest. In fact, the average savings account receives an interest rate of around 0.1% …that’s not even enough to keep pace with the historical rate of inflation of 2-3%.
Therefore, we recommend that you wisely evaluate your savings account options and look to open one with an institution that offers high-yield savings account options. You can learn more about currently available interest rate offers at certain online banks here!
To summarize: savings accounts are best for individuals looking to stash some money away for safekeeping in the case of an emergency (typically having anywhere from 3-6 months of you income saved is advisable!), for those who have a specific savings goal, such as saving for a vacation or other cause, or who need the ability to access the funds on short-notice (if need be).
To set up a savings account, feel free to do so online or in-person at any major bank or financial institution (but be sure to have your Social Security number handy!).
The other option outlined here would be CDs …and no, we don’t just mean the kind you used to custom-make and listen to on road trips.
CDs, or Certificates of Deposit, are similar to savings accounts in that they are also savings vehicles offered through a bank or financial institution. The main difference, however, is that these accounts tend to offer higher interest rates in exchange for holding on to your funds for a specific period of time AND tend to have higher minimums involved (most CDs require a minimum deposit amount of $1,000 to open).
The main perk of these types of accounts? Higher interest rates (which are locked in for the duration of the account). Though, be mindful that interest rates tend to fluctuate so a locked in rate may be favorable if the overall rates fall, but might be unfavorable if rates rise above your locked in rate.
A few things to consider if you’re thinking about a CD:
- Do you need access to this account anytime in the future? If so, it may not be wise to tie up your funds in a CD. If you withdraw your funds anytime before the specified maturity date of your account, you will be forced to pay a penalty fee and may likely be forced to forfeit some or all of the earned interest on the account (depending on the terms of your CD).
- Do you have a different or separate type of savings account already that may provide you with the liquidity or access to cash you may need during the lifetime of your CD?
In general, a CD may make the most sense if you know you don’t need to access a particular amount of cash during a specified time frame and have access to other funds you could withdraw or use in the case of an emergency. However, as with any financial investment, be sure you understand the full terms and penalty fees associated with the account prior to finalizing your decision.
To open a CD, feel free to do so online or in-person at any bank or financial institution. For a list of current offers for CDs, visit this link here!
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