SAVINGS ACCOUNTS OVERVIEW
When saving your money, you will be placing
money in many different types of savings instruments, including
very safe and stable investments vehicles. This is
especially true for money that you are going to need in the
short-term (as compared to long-term investments, such as
buying a house). This category includes bank savings
accounts and money market mutual funds, some of the
safest short term investments.
When placing your money with a bank or money
market fund, you earn interest, or yield, which fluctuates,
depending on general rates of interest.
TYPES OF SAVINGS ACCOUNTS:
Bank Savings Accounts:
When you are beginning to save, you should
place your money in investments that are as safe as possible.
In addition, you will likely always have at least some of your
money in short-term investments. Bank savings accounts are
such an investment. The federal government backs these
accounts with what is known as Federal Deposit insurance
Corporation (FDIC) Insurance.
Money Market Account:
These are accounts offered by banks.
However, in these accounts the bank typically pays you a higher
rate of interest than a savings account.
CD or Certificate of Deposit:
The bank holds your money for a set period of
time. Usually one to six months, or one to five years.
Unlike a normal savings account, you may not withdraw your money
at any time. If you do, you will be subject to withdrawal
Money Market Funds:
Similar to bank savings accounts are money
market funds. Money market accounts are available from
mutual fund companies. They are similar, but you usually get
a better return with money market funds. Also, since these
funds are not held with a bank, they are not FDIC insured.
However, they are invested in very short-term bonds, which tend to
be less risky than longer-term bonds and invest in safe government
investments, corporate commercial paper, and other related
investments. In addition, they are regulated by the U.S.
Securities and Exchange commission. Those money market
mutual funds that invests exclusively in U.S. government
securities have very little risk, while giving you better rates of
return then typical bank savings accounts.