guest post by Jonny Pean
For most people, the habit of saving money is a bit difficult. First of all, it isn’t very exciting. If you have a choice of saving a few hundred bucks this month, or spending it on that new designer purse, which one is more satisfying?? Of course, the designer purse!
Building a substantial cushion of liquid savings is essential, though, not only for peace of mind, but also in order to build true wealth over the long-term. In this article, we are going to discuss the 3 basic types of savings accounts. Personal finance experts generally recommend that the average person should have at least 3 months of living expenses in an account that is highly liquid.
Traditional Bank Account
Most local banks will allow you to open a free savings account with a very low initial account deposit. That amount can be as low as $20 at many institutions. Unlike the forex market, this is typically the best way to get started saving money. This type of savings account typically offers the lowest interest rates, but it is also considered the most liquid. Funds that you hold in a traditional account can be withdrawn at any time without penalty, and with an ATM card, funds can be withdrawn around the clock.
Money Market Account
Your local bank most likely offers money market accounts as well. These are accounts that invest 100% of its capital in U.S. treasuries and other forms of U.S. government debt. This is seen as a very safe, conservative investment with no chance of loss, since the government can always print more money to repay its lenders.
These accounts typically offer a more aggressive interest rate return than a standard savings account, but they also are not as liquid. Typically, it will take several business days to withdraw funds.
Certificate of Deposit
This is a favorite among conservative investors because it offers the most aggressive interest rate. CD’s are a very popular way to invest cash savings. The increased interest rate is the major advantage that this type of savings vehicle holds over the previously mentioned ones. However, the primary drawback is that CD’s will require you to keep your funds invested for until the CD reaches maturity, which can be anywhere from a few months to a few years. Typically, the longer your cash is tied up, the better interest rate you will earn.
If you want to withdraw your cash before the maturity date, you can do that, but not without paying a penalty. This makes a CD the highest yielding investment vehicle of the three discussed here, but also the least liquid.
Understanding the interest rate payoff and degree of liquidity in each of these investment vehicles will help you determine which is right for you in your current financial situation.
by David Spader
Millions of Americans move house every year, and that frequently means finding a new bank/credit union. The problem of finding a good bank has been more difficult since the Great Recession started in late 2007. The federal government has shut down hundreds of insolvent banks since that time, and continues to do so. Here are some things to look for when choosing a bank or credit union.
The most important thing is FDIC insurance, should the bank become insolvent. The FDIC has always paid insured account holders within 30 days of seizing a bank. State chartered banks and credit unions may or may not be insured. Ask before you open an account.
Fees can add up to a small fortune very quickly if the bank charges for every little service. Look for banks that offer free checking, free checks, no minimum balance and no fee for using a teller inside the bank. Especially check into their ATM fees. Some banks tack on a surcharge for using an ATM outside of their network, and this is in addition to the fee paid at the ATM. Additionally, some banks charge to mail a paper statement or photocopies of your canceled checks.
Savings interest rates are at historic lows, hovering at around one percent. Credit unions usually offer a higher interest rate than banks. Find the best interest rate for the amount of money you plan to invest, but make sure that you can do without the money for the required period of time. For example, you may earn two percent higher interest on a five-year certificate of deposit, but there will be significant penalties if you need the money before maturity.
Lending policies are another thing to look for when choosing a bank or credit union. If you plan to buy a home, then you want a bank that makes the mortgage process easy and without excessive loan origination costs. If you have slightly damaged credit, which is common with the current economy, then choose a bank or credit union that services this type of customer.
Make sure that the bank or credit union offers the services you need, such as a safe deposit box, online banking and bill pay, the ability to transfer money from one account to another over the phone, and overdraft protection. Also, if you are paid through direct deposit, ask the bank if they allow immediate access to the money.
The website, Bankrate.com, lists the health of hundreds of banks and credit unions throughout the country. Use this data to immediately eliminate problem banks and hone in on the healthier ones in your neighborhood.