InterestingRates

Safe savings

• The number of people regularly saving money in the United States are at an all-time low, however, competition among banks for what dollars Americans do set aside for a rainy day is fiercer than ever. For those who can afford to save, the market is ripe with offers for savings accounts and Certificates of Deposit (CDs) that offer a high rate of interest.

  But before handing your money over to the bank, first decide what kind of savings product suits you and then shop around for offers. Also take note of a useful trick to help you save more faster.

 

• Savings accounts

• Savings accounts differ from checking accounts in that they offer considerably higher rates of interest, usually at the cost of not being able to access and use your money so easily. Though it is common practice today to allow savers to move money between their checking and savings accounts with ease, savings accounts do not generally allow you to extract money directly, say by writing a check or using a debit card.

  That said, fierce competition among banks, particularly with the advent of online banks, which can keep staffing costs low by not maintaining a high street presence, has meant that the rules are becoming increasingly flexible. At the same time, the rates being offered are also going up relative to real interest rates as banks slash their margins to attract business.

  The market is now more diverse, and therefore it requires research on the part of the saver to find the best deal. Start by looking online, and particularly at online banks, which generally offer the best rates with the fewest restrictions.

 

• Certificates of Deposit

• Certificates of Deposit (CDs) are an alternative way to grow your savings while ensuring the capital is protected. Unlike savings accounts, CDs are usually created for a fixed term of anything from one month to up to five years. In most cases, money cannot be withdrawn before the CD matures without the saver having to pay some kind of penalty, usually involving the loss of all or part of the interest earned.

  Most CDs apply a fixed rate of interest, which is usually higher for larger sums of money and for longer periods. A five-year CD of 100,000 with almost always pay more than a one-month CD of 10,000, unless the latter is subject to an initial teaser rate. However, given ongoing fluctuations in interest rates, some banks are opting instead to give clients the chance to lock in new rates at a future date, while some apply a flexible interest rate that moves in line with the base interest rate set by the Federal Reserve.

The ladder trick Because rates change, and good savings accounts or CDs can look bad as soon as new offers emerge, serious savers have developed a technique to ensure that they can always take advantage of a new opportunity. The trick is known as laddering and ensures that you have access to at least part of your savings at a regular interval while still being able to take advantage of the higher interest rates of longer term deposits. A person using laddering with $90,000 to save, would initially put $30,000 in a CD maturing in one year, $30,000 in a CD maturing in two, and $30,000 in a CD maturing in three. Then when they expire all will be bumped up to three-year CDs at the best interest rate available at that time. In this way the saver always has a CD maturing each year and can reinvest the money in the best savings offer available at that time. The same practice can be used with savings accounts, by switching between banks offering the best rates when new offers arise, particularly if there are introductory or teaser rates involved.

 

 

Savings accounts and CDs are a good choice for money that you may need in the near future, but you could earn considerably higher returns by investing it in an investment fund (a conservative one would expose your money to less risk) or, for the more adventurous playing the stock market or currency market.

 

Find other savings ideas here.