Most people in this clan just go to the
bank to put their money in form of savings without asking some simple
questions that could add additional kobo to their purse more than what
the bank should have ordinarily given them.
If you are in this category of people
who don’t ask simple questions like “What benefit is in this account for
me?” then take it that you may have been losing money for either your
ignorance or negligence. Simple! If you are saving for a large purchase
or something predictable a few months or years down the road, you can
probably find better rates with Certificates of Deposit (time deposits)
or possibly a money market fund.
This belief is that a savings account is
the most convenient place to save money, but it might not be putting
your money to work.
Ask questions like, “What is the
interest rate?” This helps you to choose the account you would like your
money to be in, depending on where you bank and what type of account
you have, but I know that there are other accounts that could put your
money to work.
According to Jeremy Vohwinkle, a
personal finance analyst, “there are many different savings vehicles
available, but not all of them are appropriate for every situation.
“Most likely, you have already
established a savings account at your local bank or credit union, and
you may have this linked up directly to your primary checking account to
make transferring money to savings easy. A savings account is the most
convenient place to save money, but it might not be putting your money
to work,” Vohwinkle added.
“When using a savings account, it is
important to look at the interest rate. Depending on where you bank and
what type of account you have, you could be earning anywhere from less
than 1 percent up to 4 percent or more. The problem is that many banks
only provide high interest rates for significant balances over a certain
amount. If you find you are only earning 0.65percent, after accounting
for inflation, you are actually losing purchasing power,” Vohwinkle
said.
The expert further said: “The best thing
about savings accounts is that they are completely liquid. This means
you can access your money on very short notice. You may be able to go
online and transfer money from savings to checking, withdraw from an
ATM, or stop into your local branch.”
In addition to having just a savings
account, your money can be put to work at money market fund,
Certificates of Deposit, and investment account, among others.
Although money market accounts generally
have higher interest rates than a savings account, the restrictions on
the number of withdrawals per month or the requirement of opening a
separate account makes these funds slightly less liquid.
A certificate of deposit, otherwise
known as a CD, is another place to save money that is routinely offered
by your bank. A CD is a time deposit, which means that the money you
place on deposit must remain there for a specified amount of time before
you can withdraw it.
You can purchase a CD with a variety of
time frames as short as one month to upwards of many years or more. In
most cases, the longer you agree to leave your money on deposit, the
more interest the bank will pay you.
Since you are required to leave your
money in the CD for the amount of time selected, this can make your
money less accessible than a savings or money market account. This can
be a good thing, since it encourages you to leave the money alone, but
in an emergency where the money is needed very quickly, this can be a
hindrance.
For many people, it comes down to having
a mix of multiple savings vehicles. There will be part of an emergency
fund in a savings account at the bank, possibly some cash in a money
market fund in an investment account, and bonds stashed away for
longer-term savings. Whatever the case may be, you want to make sure
your money is working as hard as it can.
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