Picking the Right Way To Save

Budgeting isn’t just about knowing how much to save, it’s also about figuring the best way to save. Short-term funds that need to be available for emergency purposes might go into a regular savings account. More long-term savings for retirement would go into money market accounts or IRAs. When trying to figure out where to stash your money, take a look at what you intend for that money in the future to get the best deal. Find out about the different kinds of saving accounts available at your local bank.

Shorter Terms Mean Less Interest

The magic of saving comes from interest that you earn on the saved amount. That interest is based how long those funds stay in that account and the average interest being offered in that time period by banks. This will shift as conditions in the economy change and the Federal Reserve tweaks lending rates. One thing is certain, however, the longer you set aside the money, and the more the bank will be willing to offer a better interest rate. You will also earn more over the life of the loan, instead of spending it.

Some Types of Savings Accounts

• Regular Savings Account – This is sometimes referred to as a passbook account, although transactions don’t take place this way anymore. You can usually get a debit card tied into your regular savings and money is easily accessible, which makes it hard to save. Interest rates are very low.

• Money Market Accounts – These accounts offer a higher interest rate and keeps the funds tied up until the money market account matures. You do get premium interest rates and some withdrawals without penalties. You do have to meet minimum account balances and can’t go below that. The money is invested, by the bank, in Certificate of Deposits, treasury funds, and other low-risk investments.

• IRA or Retirement Savings Accounts – These can be tax-deferred making it easier to save more. If you withdraw money before you’re eligible to retire, you will be penalized severely, which can amount to 30% in fees and taxes. This makes it ideal for long-term retirement savings, since the incentive to keep it there is high. Rates can be fixed or tied to the stock market.

• Certificate of Deposits – These offer set terms that can be several years to a few months. The interest rate is determined by how long you tie the money up in the account. You cannot withdraw without getting penalized, so the money is less accessible than a money market account.