Savings and Investments

For most people, their very first journey into the world of finance was via the simple savings account.   These accounts are the primary basis of the financial system though these days there certainly are many others.  The basic savings account is still a good way to keep your money working for you while being easily accessible.  Though interest rates will vary one thing is certain.  It is always better to earn a little interest than no interest.

Many cash strapped and stock market weary Americans are returning to a simpler way of financial living and with that comes a return to the old fashioned savings account.  They may find that they have a lot more options than they did when they opened their first one many years back.  Which one is right?

The traditional savings account is simple and of course still exists.  You deposit a sum of money into the account and the bank pays you interest, though not very much.  The account may place restrictions on the number of transactions you can make on it in a given month.  This type of savings account is fine for keeping your money safe, but there are options that will pay you more interest.

Certificates of Deposit (CDs) are another type of savings account.  In this type, the money is tied up for a certain predetermined amount of time.  The interval can range from a few months to several years.  Though you can request to withdraw the money early, you will pay a steep penalty.  These accounts will earn you a higher interest rate than the standard savings account and usually the longer you invest the money the higher the rate will be.

There are also specific types of savings accounts that allow you many advantages when it comes to the accounts primary purpose.  A good example is the health savings account.  Its purpose is to provide you a way to save in case medical bills arise.  Many people prefer to use these accounts in lieu of expensive medical insurance policies.  These accounts bear interest like any other account, but the interest is not subject to taxes.

Education savings accounts are another example.  Just like health accounts, the money must be used for its primary purpose, in this case higher education.  As long as the money is used to fund education, the interest will not be taxed.

There are such savings accounts that pay a relatively high interest rate.  They are referred to as high yield accounts.  In return for a higher interest rate, the account holder must make a much higher initial deposit and maintain a high balance.  Other restrictions such as transaction limits may also apply.

A money market account functions similar to a mutual fund.  The money is invested in stocks and bonds.  As the assets perform, your receive payments based on the return.  If the portfolio does well, you get paid more.  If it tanks, you get paid less.  The difference is that you can never lose your capital.

Keep in mind that interest rates can vary greatly from one institution to the next.  Always do your homework to find the one that is offering the best deal based on your situation.

About the Author:
This article was edited by Daniel Tobin, a junior editor for Ratelines.com.
Since 2004, Ratelines.com has been an independent and objective source for reliable information about the finance industry, cd rates and savings accounts.