Choosing Saving Products

Piggy bank coinPutting your money in a savings account at a bank or credit union can offer a low-risk savings option. Accumulating your savings in a bank account offers the following benefits as you are building funds for future purchases or other types of investments:

  • Safety – The money is safe from theft and buying binges. Plus, the money is insured by the Federal Deposit Insurance Corporation (FDIC) so that if anything happens to the financial institution, you still can get your money.
  • Interest – Although interest rates typically are low, your money will earn interest over time. And compound interest is a way to have your money make money for you.
  • Ease of access and easy tracking – With online banking, it is easy to check your balances and retrieve your money when you need it. 

Typical savings options include the following:

  • Pros
    • Low balance requirement. 
    • Can add/remove money easily.
    • Interest typically is earned monthly or quarterly.
    • Money is FDIC-insured.
  • Cons
    • Low interest rate. 
    • Unlikely to beat inflation.
    • May incur fees or penalties for low balances
  • Pros
    • Higher interest rate than savings accounts.
    • Can add/remove money easily.
    • Interest typically is earned monthly. 
    • Money is insured.
  • Cons
    • Limits on number of monthly withdrawals.
    • Higher balance requirements than savings accounts.
    • May incur fees for low balances.
  • Pros
    • Higher interest rate than savings accounts or MMAs.
    • Interest rate remains the same for a specific period of time (e.g., 6 months).
    • Interest may accumulate more often than a savings account or MMA.
  • Cons
    • Money is locked in at a specific interest rate for a specific period of time.
    • Penalties for early withdrawal.
  • Pros
    • Low minimum required deposit ($100 and multiples thereof)
    • Fixed interest rate for up to 30 years.
  • Cons
    • Interest accumulates, but only is paid when bond is cashed.
    • Penalties for withdrawal in the first five years .
    • Cannot withdraw money for a year.

Remember, interest rates for these types of accounts almost always will be lower than investment products such as stocks and bonds. Because of compounding interest, your money will add up, but at a much slower rate.

Shop around at banks and credit unions to compare savings products. Be sure to ask about:

  • Minimum balance requirements
  • Current annual percentage yield (APY)
  • Compounding frequency
  • Any fees or penalties
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