Put Your Savings Away Safely

There are three important factors to consider in any type of savings or investment:

1) Safety – The protection against partial or total loss. Money deposited into a financial institution account, up to $100,000, is insured by the federal government against loss, by the FDIC for banks, and by the NCUA for credit unions. They will sport the appropriate sticker on their front window for all to see. Stocks, bonds, mutual funds, annuities, municipal securities, and life insurance are not insured, even if you invest through those financial institutions.

2) Liquidity – The availability of funds. A savings account will normally let you withdrawal money at any time; it’s highly liquid. A Certificate of Deposit (CD) will have a maturity date, and you’d be penalized for cashing in on your deposit before that date, so it’s not so liquid.

3) Yield – The growth of the deposit with interest or dividend earnings. Generally, the lower the risk, the lower the yield. Also, the more liquidity, the lower the yield.


Financial Institutions offer several savings options:

Regular bank savings account, or credit union share account - This is a good starting point as you gradually build your savings. Your money will earn a small percent in interest, and it will be immediately available to you if you come across an emergency. The minimum deposit is usually a very low amount, which is required to avoid maintenance fees. There will probably be a limit to how many withdrawals can be made in a month.

Interest-earning checking account with a bank, or share draft account with a credit union – An option if you want to only maintain one account, but you’ll be more likely to dip into your savings if savings money and spending money are in the same account. There will probably be a minimum balance required for you to earn interest on your money, and the balance may be computed by the average daily balance or by the lowest balance during that month. Check with your financial institution to find out their requirements.

Money market deposit account – This type of account will pay a higher rate of interest than a checking or savings, but it will have a substantial minimum deposit requirement. You’ll be allowed to make withdrawals and write checks from this account, but the number of withdrawals will be limited to six per month, with no more than three of them being by check, draft, or debit card. This is a good option if you have a significant savings and want to maintain liquidity.

Certificate of deposit, or share certificate – Money put into a CD will earn better interest than in a money market account. The minimum deposit may be as low as a few hundred to a thousand dollars. CD terms may range from 30 days to 5 years - the longer you commit your money, the better your return. If you cash in on your principal before the maturity date, you will be charged penalty fees, but some institutions may let you withdrawal your interest without penalty. Some institutions may automatically rollover your CD if you don’t cash it in when mature, tying your money back up if you aren’t on top of that maturity date. You can take advantage of higher yields and still maintain some liquidity by staggering maturity dates of several CDs, so you always have money coming available to you if needed.