Saving money with a low-risk interest earning account rather than high-risk investments will provide you with the opportunity to save money safely. There are many different types of accounts that can store your savings in different ways.
One of the common ways people save money is by creating a savings account. Generally, banks and credit unions provide saving accounts. For the safety of the account holder, the money in the account is insured by an insurance company, the FDIC, who secure money based on specific limits. There are also restrictions that apply to savings accounts such as a service fee applied when more than the listed amount of transactions occur monthly. With individual accounts, the money you save is unable to be accessed via a check or ATM; however, the interest rates for savings accounts are low and online banking provides higher bond saving accounts.
Treasury Bills and Notes
Treasury Bills and notes are US government covered with full faith and credit, which is why it’s considered one of the safest investments. Treasuries are free from state and local taxes which you can buy in various maturity durations. The bills sell at a discounted price, and when they reach maturity, will be worth more than before. There are differences with the purchase price and face value price as the interest differs. The only issue is that you won’t end up making much money from it, as it takes a long time for them to mature.
An example of this is when you buy a $1,000 bill for $985, and when it matures, it will be worth more than the full face value. The treasury notes are different than advertised with various maturities such as 2, 3, 5, 7 and 10 years. There is also a fixed rate of interest that is applied every six months. In addition to the interest earned, purchased treasury notes can be saved for the face value at maturity, and this applies for treasury bills bought at a minimum of $100.
Certificates of Deposit
Certificates of Deposit (CDs) are a savings account that is available via most banks and credit unions and are FDIC insured for protection; however, the interest rate is higher with more substantial deposits. The certificate of deposit will contain the money in the account for a specific period as a kind of fee, which is usually a three-month interest rate. Some ordinary certificates of deposit include money for longer periods, such as six months, one year and five years. The earned interest can be added to the certificate of deposit when assessed and matured, at that time you can exchange them for money or sell them to others.
High-Yield Bank Accounts
High-yield bank accounts are a form of saving money in an account with FDIC protection; however, it earns a higher interest rate than regular savings accounts provided by banks and credit unions. This type of savings account earns additional money because it needs a more significant deposit; furthermore, the account is limited in that you can only put a certain amount of funds in it.
This type of account is for customers that have other types of accounts with a bank. One downfall to this account type is that accounts are available online; however, it’s required to transfer funds from another bank where you can deposit and withdraw selected funds from the bank online.
Money Market Funds
Monday market funds are mutual funds that only take investments in low-risk securities; therefore money market funds are known as one of the lowest risk types of funds for saving money. The return is also short term and has lower interest rates with money market funds.
The downside to this type of savings account is that the account will not be FDIC insured and are instead regulated by Security Exchange Commission’s Investment Company, which may cause protection issues in cases that have large sums of money. Many banks and brokerage firms offer money market funds that can be applied for quickly and set up to use; however, it is useful to do research beforehand as interest rates are not always guaranteed.
Money Mark Deposit Accounts
Money market deposit accounts are a type of account that requires a minimum initial deposit and has a limited number of transactions. It’s provided by most banks in most places and is FDIC insured. Different from money market funds, this kind of account is insured which is highly beneficial when saving money as you want to know your money is safe with the investment. There is a chance of penalties with this account, and it’s charged if the specified minimum balance is not matched or in some cases, if the maximum number of transactions completed monthly reaches an overriding amount. The interest rates are lower with this account type, unlike certificates of deposit; however, with this account type, the money saved is easily obtainable.
Bonds are low-risk investments that are provided by companies, governments, states, and municipalities with the aim to fund projects and schemes. Purchasing a bond means you are essentially lending the money to either one of the entities, which is usually the issuer and is exchanged for a loan, after that the issuer of the bond is required to pay interest for life of the bond with a returning face value at the point of maturity.
Bonds are generally given with a specific duration in mind at a fixed interest rate. With each type of bond there are different levels of risk, such as returns and the maturity periods that are limited; furthermore, penalties could be assessed to check for early withdrawal as well as commissions being requested. The type of bond is also dependent on if the bond carries any additional risk as in some circumstances with corporate bonds, companies can lead to bankruptcy which is what people want to avoid. The benefit of saving money is unquestionable; however, you want to be able to manage your daily priorities by finding the best saving account with low-risk returns. Doing research is essential to find the best place to store your money and invest.