Saving is an integral part of personal financial success. Ideally, you want an emergency savings covering at least 3 months of what you currently spend monthly, an irregular expense savings (a little extra for auto repairs, property taxes, etc.), retirement, and your children’s education. Don’t let the investment jargon scare you away from some higher paying savings options. Here’s some basic saving options to get you started.
Savings Account: An account you set up at your bank (preferably an FDIC member) to keep your money. It is available for withdrawal at any time (meaning it is liquid) and it is insured and set at a guaranteed interest (meaning it is safe). Many banks offer a low fixed interest rate (generally around 3-4%), and the “fixed” part makes it easier for you to know how much money you will make in interest in a given time.
Money Market Accounts: Generally provide a higher interest rate than a savings account, but the interest isn’t fixed. You can still access your funds easily although some do require a high minimum balance. Money market funds or money funds are mutual funds, and are not the same thing as a money market account.
Certificates of deposit (CDs)
Generally safe, they pay higher interest rates than bank accounts. Generally, you cannot withdraw money for a certain amount of time without a penalty.
Mutual Funds: A way to own different stocks in one single investment, and they don’t always guarantee a return (much riskier). You’ll want to speak with a financial planner for advice regarding these.
Brokerage Services: Buying individual stocks and bonds. You’ll want to speak with a financial planner regarding these services as well.
Retirement accounts: These include Traditional Individual Retirement Accounts (IRAs), Roth IRAs, 401k, pension, etc. Generally, they offer tax advantages and ways to earn more money in the long run, but some also have a tax penalty for early withdrawal. Some offer other benefits beyond retirement.