If you are feeling confused as to where your saved cash would do its best, you should know that there are many better places than under a mattress, inside a freezer, or in that oil can in your garage. Okay, that last one was all me. I was young and foolish -- what can I say? These places include: a checking or savings account, a Certificate of Deposit, or Money Market Account.
Open a Savings Account or an Interest Checking Account
If you know you are going to need the money some time within the next few months, consider a savings account or an interest checking account. These types of accounts will not offer the most exciting interest rates though you should not have to settle for less than 3% in this day and age, but they are better than an oil can. Make sure that you do not keep more than a couple thousand dollars in there the rest should go in something that pays you more interest, and look for an account that has no minimum balance and no fees whatsoever. On the checking account, make sure you do check what fees are going to be charged as they can be a little annoying month after month.
One way you can use your account to your advantage is to link it with a checking account, gaining the ability to easily transfer funds back and forth and work as overdraft protection for the checking. Many of the best savings rates are offered by online banks, and you can read about my excellent experience with ING Direct USA, in particular: personal testimony with ING Direct.
Open a Money Market Account
If you’re smart and have managed to put away three months’ income for an emergency, I highly recommend putting that into a money market account. In searching for one, try to find something with a low minimum balance say, $500 to avoid maintenance fees, no penalties for closing accounts, and reasonable limits on the number of withdrawals you can make say, four minimum. You may not need this money for a long time, but you’re going to need it quickly when the time comes. With that in mind, linking your MMA to your checking account is not a bad idea either. What’s most important with a money market account is to make sure you’re getting the most competitive rate.
Get a Certificate of Deposit - CD
Certificates of Deposit or CDs are a great strategy for long-term savings that need to be guaranteed. Money for education, a car or a down payment on a house could do quite well in a CD. Your money will be tied up for anywhere from three months to 10 years depending on your needs and what interest rates you want. Though these rates are a lot lower than they were even a year ago the Fed’s rate cuts are to blame, the rates on CDs are guaranteed, which might provide a little more peace of mind than the variable rates on savings or money market accounts. CDs have better interest rates than savings accounts so if you don’t need access to the money they are a good option.
None of these options have the allure of a high-risk investment account, but if you want your money to go to work for you and guarantee a return of some kind, they all beat the heck out of the old oil can method that I used as a kid.
Josh Michaels is a freelance writer who survives on very little income and carefully considered financial decisions. This combination has allowed him to have fun, travel the world, and start a retirement account – all without the pleasure of holding a full-time job. He can be reached at: joshmichaelsmoney@hotmail.com
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