Tag Archives: Certificate Deposits

Which Deposit Accounts Are Right for You

f15When it comes to storing money, where it ends up can make a difference. Whether the goal is to let money rest in place and build interest from investments, or be readily available for spending and paying off bills, several accounts can meet these needs. It is common to have a number of options to accommodate various financial goals. Here are some of the more popular deposit accounts available.

Checking

When it comes to deposit accounts, checking is the most standard type available. This is basically a place to collect money that is intended to be spent. They are usually free if a certain balance is maintained, but they may charge a small fee. This resource will give owners the ability to transfer funds, spend, and write checks. A checking account is a smart choice to have for paying bills, day-to-day spending, and collecting paychecks, but do not expect much (if any) interest.

Savings

These are where money can be stored and saved for a rainy day or some other type of investment. Savings accounts are a reliable way to put money aside and let it build through interest. They offer no investment risk for the owner or the bank. Their investors use the stored money and in return reward the owner in the form of interest payments. Unfortunately, the 15% interest rates of the 1970s have been replaced with 2-5% interest rates. That being said, owners can remain at ease by putting their money here and watching it grow.

Money Market

A sort of hybrid between checking and savings, money markets maintain higher interest rates but are subject to greater withdrawal amounts (six instead of three). This higher interest rate is the result of pooling the money into a different fund that is used by investors to produce higher profits. Since this is a more aggressive form of investing, there is more risk associated with it. At no point in history have these deposit accounts ever actually lost money. With the risk being this low, the higher interest rates are widely accepted as a smart trade-off for the customer.

Certificate Deposits

Also referred to as time deposits, this lesser known variety is a great option for safe investing. These get their name from the fact that the owner agrees to let the money remain in place for a certain amount of time, allowing the interest rate to accrue exponentially as the time passes. Because the funds have restricted access, owners can expect a higher interest rate. The money is heavily taxed and penalized if the agreed upon time has not passed; therefore, these are not ideal for anyone who does not have savings and a reliable source of income to supplement their spending. Owners should talk to their bank about the maturity dates offered. Maturity dates are the amount of time that has to pass before money can be withdrawn. This will allow the owner to know how long they would need to leave their money in place before withdrawal.