A savings account is one of the best and safest places for your money but perhaps you want to explore IRAs and others. Not only is the stash easily accessible from there, but you also get to earn interest on it. We will show you more about popular options to save. Most of these accounts offer FDIC (Federal Deposit Insurance Corporation) insurance if you have deposits of as much as $250,000. However, your choice of accounts should also be based on your personal goals and savings style.
Checking Account
A checking account is perfect if you require frequent and easy access to your saved money. You can just write a check against your balance and pay for any goods/services. Besides, all banks offer online account management these days, which means you can conveniently transfer money or pay utility bills/subscription fees electronically. Debit cards provide further convenience.
For the best options, choose a bank that offers nominal fees and a low minimum balance requirement on its checking accounts. It should also have a wide network of ATMs (Automated Teller Machines). One downside to keeping a checking account is that it hardly pays any interest on deposits.
Basic Savings Account
This is the simplest kind of savings account. The amount that is in there will earn interest and you can withdraw cash as and when needed. You can also keep adding to it by making more deposits from time to time.
But, there is a limit regarding how often money can be withdrawn or deposited. Although in-person deposits and withdrawals are usually unlimited, preauthorized ones are capped at 6 times a month.
Just like checking accounts, the best savings account options are those where the minimum balance requirement is low and fees are minimal. Easy access to cash is also available at all times. while interest rates are significantly higher compared to checking accounts. So, a savings account will enable you to earn decent returns over time.
Certificate of Deposit (CD)
Unlike savings and checking accounts where you can easily access your cash pretty much whenever you want, a Certificate of Deposit (CD) is more of a long-term plan. In other words, you cannot use the money deposited for quite a while.
With a CD, you deposit an amount and then decide on a length of time for that stash to grow. This is normally between 3 months and 10 years. You receive a fixed rate of return during this time. The longer your money stays in a CD, the higher your return will be.
As stated earlier, the biggest downside to investing in a Certificate of Deposit is not being able to access the money at your discretion. You can incur a penalty if you decide to cash out your CD sooner than the decided time. You can, however, avail CD loan facility. Through it, you can borrow money against the amount on your CD.
Furthermore, most banks keep the minimum deposit requirement for a CD at $1,000. This tends to create an entry barrier, particularly for new savers that don’t have this kind of money lying around in savings. One more upside is the high rate of interest. This is greater than almost any other savings account or low-risk investment.
Money Market Account
A money market account provides a collection of benefits usually found in different savings accounts. The return is also considerably higher. Like a CD, you have to put in at least $1,000 or more to get started.
However, unlike a Certificate of Deposit, your money won’t be inaccessible for any predetermined time frame. You can utilize debit card and checkbook facilities for easy access to the money. Making emergency withdrawals is possible too.
That being said, federal regulations limit the number of “convenience withdrawals” that you can have. Similar to a savings account, you cannot take cash out more than 6 times a month. Before starting, you should also confirm with your bank if the withdrawals would incur any fees.
Individual Retirement Account (IRA)
An IRA enables you to save money for retirement on a deferred tax basis. It has the following categories.
Traditional IRA
In a traditional IRA, you can deposit money deducted from your tax returns. Any earnings on this amount will be tax-deferred till the time you withdraw it after retirement. In other words, you will be in a lower tax bracket post-retirement and the money will be taxed at a lower rate.
Roth IRA
You can transfer your after-tax income into a Roth IRA where it can then grow tax-free. Moreover, subject to the fulfillment of certain requirements, you can also avail tax-free withdrawals on this money after retirement.
Rollover IRA
A rollover IRA is the transfer of assets from former employer-sponsored retirement plans such as the 401(k), 403(b), etc into a traditional IRA. The reason to do so, is to maintain the tax-deferred status of those assets.
In the end, your decision of picking a savings account should be based on factors like how much money you can deposit right away, how frequently you are likely to need it, what rate of return would be most suitable for you, etc.
Final Word
Saving money is important regardless of debt. Make your hard-earned money work for you by using one or more of our saving options. You’ll have a nice cushion for unexpected expenses, future opportunities and vacations, and more.