Banking And Saving A Benefit To You?

Personal Finance

Banking And Saving A Benefit To You?

11th June 2009

An economic collapse in which our banking sector has proven not to be as water tight as we thought it was, what do you do with your savings? Do you continue to entrust your hard earned money to the very institutions that have shaken our economy or do you keep your money under the pillow?

Personal Finance That would be extreme but are there alternatives to a conventional savings account or even a checking account? Fortunately the answer is yes. Firstly I agree that putting money away in an interest-bearing account amidst the current financial situation is not a very smart thing to do. Let's take a look at some other options that I would advise you to have a look at.

Money Market Account

Interest rates paid on money market accounts are higher than savings accounts although you are required to keep a minimum balance. You also have flexibility of when you can withdraw money and when you can deposit money. Ultimately money market accounts invest mostly in short-term cash invesments, earn higher interest than a check or savings account and you can also get the benefit of check writing facilities. However, some institutions charge you a fee should your account balance fall below the minimum requirement. Money market accounts are federally insured up to $100,000. The interest rate flactuates based on the market, they can even change on a daily basis.

Credit Unions

Credit Unions are non profit organizations, member owned cooperatives. Members of a credit union have something in common, they usually belong to the same labor union or common employer or even a common neighborhood. Credit unions are different from a savings deposit in that the fees are lower, interest rates are generally higher than those of commercial banks. You may however have restricted ATM access.

Mutual Funds

Investopedia defines a mutual fund as "investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are operated by money mangers, who invest the fund's capital and attempt to produce capital gains and income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus."

The benefits are that the size of the mutual fund provides it access to investments that would typically not be available or even advisable to an ordinary guy like me. So that's an advantage for the small investor.

CD (Certificate of Deposit)

Simply put, a certificate of deposit is where you as the depositor "lend" money to the bank for a period of time and the bank then pays you interest on your deposit. This is beneficial to you because a certificate of deposit account generally pays a much higher interest rate than a conventional savings account or a money market account. The downside of the CD account is that you will have to keep your money in there for the prescribed term which can range anywhere from one month to five years. If you withdraw before the period is up you will have to pay a penalty fee. As a general rule of thumb the longer the term of the CD, the higher the interest rate you can get.

ETF (Exchange Traded Fund)

These are my personal favorite. You get different types of ETFs like exchange ETFs, actively managed ETFs etc. But what is an ETF? A definition from Wikipedia is as follows "An exchange-traded fund (or ETF) is an investment vehicle traded on stock exchanges, much like stocks. An ETF holds assets such as stocks or bonds and trades at approximately the same price as the net asset value of its underlying assets over the course of the trading day. Most ETFs track an index, such as the S&P 500 or MSCI EAFE. ETFs may be attractive as investments because of their low costs, tax efficiency, and stock-like features."

So folks, before you park your money just anywhere, shop around and decide what the best place to put your money is and how easily you can access your money should you need it.

"Money is power, freedom, a cushion, the root of all evil, the sum of blessings. " - Carl Sandburg

Comments (4):

Yolanda Says: Wowie. I had no idea there were so many other savings options. Thanks Kev | 06.11.2009 |

Jack Says: What a variety. Thanks for the article and the information here. It's very informative and I'll definately shop around to see where I can get better rates | 06.11.2009 |

Mitch Says: Really informative. I've heard of credit unions but didn't really understand what they were now I do. Thanks | 06.11.2009 |

Pete Says: Good information. I also wondered what a credit union was but thanks to this article I understand what it is | 06.11.2009 |

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Banking And Saving A Benefit To You?

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