Savings Accounts

A savings account is used to save money and earn interest on the cash in the account. You can open a savings account at a bank or credit union.

There Are Several Types of Saving Accounts:

• Basic Savings. This is simple to set up, safe and often has a very low or no balance requirement. These accounts offer a very low interest rate.  But your money is protected by the government with FDIC insurance.
• Money Market Savings. This type of account often offers higher interest rates than a basic savings account. But they also require a higher balance.
• Money Market Funds. Mutual funds offer money market funds that have a small amount of risk. These have higher rates of return than a money market account. This can be good for someone who already has an emergency fund built up. It’s a good way to expand a savings portfolio without a lot of risk.  Since these funds are not held by a bank, they are not FDIC-insured. However, they are invested in short-term bond. These tend to be less risky than long-term bonds. Money market funds that invest exclusively in U.S. bonds have very little risk. They also give you better rates of return than basic bank savings.
• CDs. A CD holds your money for a period of time at a set interest rate. Interest rates are higher than a basic savings account. But you cannot access your money until a precise date. Time periods range from 3 months to 5 years. If you redeem your CD before it matures, you may have to pay a penalty. This may be a good tool if you have savings you won’t need to access anytime soon.
• Online Saving Accounts. This type of savings is becoming more common. Often these accounts pay higher interest rates, but rates and requirements vary widely depending on the financial institution. Shop around to find the account that best fits your needs.
• Savings Bonds. The U.S. Treasury Department issues savings bonds. They are backed by the government, so the principal and interest will never be lost due to changes in the financial markets. Savings bonds are also free from all state and local income taxes. You can defer federal income taxes on the earnings if you wait until the bond reaches final maturity or when you cash it in. Some savings bonds are even entirely tax free if used for educational purposes.  You can invest as little as $25 (and even smaller amounts from payroll deductions plans).  Savings bonds are available at banks, credit unions or online.  For more information about savings bonds, visit TreasuryDirect.

Tips for Saving

Here are some tips for successful savings that everyone can follow:

• Determine your saving goal(s) and write them down.
• Choose a set amount to save each month or pay period.
• Treat savings as a bill and make it part of your budget.
• Keep your savings separate from the account you use to pay your bills.
• Start small – it adds up over time.
• Use direct deposit to help you save more consistently.