What do you do with the money that you want to be able to access quickly when needed, such as your emergency fund? If you put it in a CD (certificate of deposit), you may incur penalties if you have to withdraw it before the lock-in term expires.
If you mingle it with your checking account, you’re more likely to dip into it. Your savings account may not earn a very high-interest rate. Under your mattress or in your cookie jar are really not viable options. So where is the best place to stash your cash?
The following are some types of accounts you can use to maximize your savings.
1. Savings Accounts
Savings accounts are offered by banks and credit unions (cooperative financial institutions which are created, owned, and managed by their members, often employees of a particular company or members of an association). The Federal Deposit Insurance Corporation (FDIC) insures up to a certain amount the money in a savings account. There may be restrictions on savings accounts, such as a charge for exceeding the number of transactions permitted per month.
Savings account money is typically not withdrawable through check writing and occasionally through ATM withdrawals. Savings accounts tend to yield low-interest rates. However, online banking offers slightly higher-yielding savings accounts.
2. High-Yield Savings Accounts
High-yield savings accounts are types of savings accounts with FDIC insurance that earn a higher interest rate than traditional savings accounts. Due to its higher initial deposit requirements and limited access, it generally earns more money. This type of account is offered by many banks to valued clients already having accounts with the bank.
If you want to deposit or withdraw funds from an online high-yield bank account, you will need to set up a transfer from another bank. These accounts are worth exploring. To ensure you’re making the most out of your savings, shop around for the best high-yield savings account rates.
3. Certificates of Deposit (CDs)
CDs are like locked-in savings accounts. You agree to leave your money in the bank for an agreed-upon term (usually three months to five years) in return for a higher guaranteed interest rate on your principal.
Most of the time (but not always), longer terms come with higher interest rates. Some CDs come with step-up rates where your interest rate increases at specific intervals. If you withdraw all or part of your CD funds before the maturity date, the bank will charge a penalty.
4. Money Market Funds
An investment fund that only invests in low-risk securities is called a money market mutual fund. Money market funds are therefore regarded as one of the lowest-risk types of funds. Short-term interest rates provide a similar return to money market funds. Banks, brokerage firms, and mutual funds offer money market funds. Since interest rates are not guaranteed, some research can help you find a money market fund with good performance history.
5. Money Market Deposit Accounts
Money market deposit accounts, as opposed to money market funds, are also FDIC-insured. They usually require a minimum balance of $1,000 or more— sometimes as much as $10,000 or $25,000—but they pay higher interest rates than traditional savings accounts.
If your account balance falls below the minimum, you’ll probably be charged an account maintenance fee, which usually wipes out any gains from the higher interest rate. These accounts also limit withdrawals to six per month.
6. Treasury Bills and Notes
Investing in U.S. government bills and notes, also called Treasury bills and notes is one of the safest investments available anywhere in the world. Tax-exempt Treasury bonds are also available in a variety of maturity lengths. When a bill matures, it will be worth its full face value. Bills are purchased at a discount. Amounts purchased at a discount are called interest. The full value of a $1,000 bill at maturity will be $1000, even if it’s purchased for $990 now.
In contrast, Treasury notes are issued for maturities of two, three, five, seven, and ten years, and pay a fixed interest rate every six months. The T-notes can be redeemed at maturity for their face value if bought at a discount, in addition to the interest. A $100 purchase of Treasury notes or bills is required.
Companies, municipalities, states, and governments issue bonds as a low-risk debt investment to fund projects. A bond is a loan made to one of these entities (known as the issuer). A bond issuer repays the bond’s face value at maturity in exchange for a “loan” that pays interest over the lifetime of the bond. Bonds come with a fixed interest rate and are issued for a specific period.
The risk and maturity periods associated with each of these bond types vary. As well as penalties, commissions may be charged for early withdrawals. Bonds may carry additional risks depending on the type, such as corporate bonds that could go bankrupt if a company defaults.
People Also Ask FAQs
How Much Can You Withdraw From a Savings Account?
According to a federal law called Regulation D, there is a limit on savings account withdrawals. You can only withdraw up to six times a month.
How Do I Buy a Treasury Bill?
TreasuryDirect is a government website where US Treasury bills can be purchased. It requires you to register and open an account. As a result, you will be able to hold your bonds in a brokerage account. There are regular auctions for T-bills.
What Accounts Are FDIC Insured?
Savings, checking, money market, and certificate of deposit (CD) accounts are covered by FDIC insurance. Annuities, money market mutual funds, stocks, bonds, and mutual funds (including money market mutual funds) are not covered by the FDIC.
You can save money in savings accounts and earn modest returns while doing so. Considering the vast array of savings vehicles available, a little research can help determine which will be most effective for you. When choosing a savings account, it is important to do your research so you can maximize your savings.