Thursday, Nov. 7, 2019 | 2 a.m.
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Choosing the right place to deposit your money is an important step in developing financial health. “One of the building blocks of a solid foundation is a savings account,” said Nicole Cypers, Vice President of Public Relations at America First Credit Union. There are multiple account options to consider, so when you’re deciding which is right for you, examine the nature of your savings, your long-term financial goals, and how often you intend to access the funds.
“Short term” savings accounts
Standard savings account
Standard or traditional savings accounts are simple to use and the most common types offered by credit unions and banks. Nearly everyone is eligible and deposited funds are insured up to $250,000 for each qualifying account. There may be associated fees and limitations, such as minimum-balance requirements or service charges, however, some institutions offer accounts that are less restrictive. “Traditional savings is likely what most consumers think of when opening a first account. Although dividend rates will typically be lower, it’s a great place to start,” Cypers said. You can make savings withdrawals up to six times a month, per federal regulations, and usually add to the account as often as you want.
Money market savings account
Money market accounts are essentially mutual funds structured as investments in low-risk securities. They tend to earn dividends at higher rates than standard accounts. “With a money market account, your return is greater than what would be provided by traditional savings, while providing quick access and flexibility,” Cypers said. “The more you deposit, the higher your dividend rate.” These typically require higher minimum balances, but both accounts are good for short-term goals and emergency funds.
Dedicated saving accounts
Some financial institutions, including America First, offer dedicated savings programs for specific goals, such as an upcoming wedding or family vacation. You can set the contribution amount and term to help maximize your savings potential. “With dedicated savings, you’ll choose how much you want to transfer each month. The money is then set aside in a separate account for the length of time you’ve specified,” Cypers said. “Your dividends can go directly to your checking, money market, share savings—or you can roll them back and enjoy the benefits of compound interest.”
“Long(er) term” savings accounts
Individual Retirement accounts
You can prepare for retirement and other long-term savings goals with tax-advantaged accounts. These include 401(k) plans, as well as different kinds of IRAs, such as Traditional and Roth. Retirement accounts generally offer the highest dividends and the longest terms. “The sooner you start saving for retirement, the better, even if your initial contributions are lower than you’d like. As long as you don’t withdraw it, that money will continue to grow over the course of your lifetime,” Cypers said. Retirement accounts have many different regulations and requirements, so do your research to find the one that fits you best.
Certificates of deposit (CDs)
For future goals, you can invest in certificates to help your money grow over an extended time period. Certificates of deposits have higher dividend rates but feature a set term of maturity before you can use the money. This can be anywhere from a few months to several years. The longer the term and the larger your deposits are, the higher the dividend rate will be. There are also specific regulations and penalties that apply for early withdrawals. Certificates have terms that donâ€™t typically exceed five years, so this choice is ideal for people seeking to buy a home or make other large investments.