Savings accounts are the most basic forms of investment, and are how most people begin to save. The most commonly used and best known savings account is a basic regular savings account or a pass book savings account.
Passbook accounts are easy to open and rarely have any stipulations about minimum deposits. They are easy to open at any bank but often have limits on the number of withdrawals you can make in a given month without incurring additional fees. Typically they pay lower rates of interest but provide a convenient way to get into the habit of saving. Passbook accounts are insured by the FDIC, which is explained in a one o the following paragraphs. It pays to shop around for the best rates and savings plans.
Money Market Accounts offer savers a higher return on their deposits. Deposits are also insured by the FDIC. To keep your savings account active, you must maintain a minimum balance, unlike most passbook accounts. Your balance is easily accessible, but you are allowed to write only a limited number of checks.
Certificates of Deposit (CD) are a savings account that must follow certain rules and conditions. You must leave your money on deposit for a specified period, usually 3-6 months, one year, 5 years and more. If you withdraw money before the term is met, a penalty will be imposed. This is not an account to be considered if you expect to draw out funds anytime soon. The longer you lock up your funds, the higher the rate of interest you can expect to earn.
All savings accounts listed are insured with the Federal Deposit Insurance Corporation, a U S government body that protects depositors from bank failures. Individual accounts are covered up to a maximum of $250,000. Since the FDIC’s creation in 1934, no citizen has lost a penny during any bank failure or crisis.
Interest rates at most banks are at their lowest levels in years. Returns even on long term CDs and Money Market accounts are generally under 2%. Passbook savings range from .39 % to APY 89%. For the time being, these rates are the new normal.
Some investors, seeking higher interest rates, leave the safety of FDIC accounts and venture into riskier savings strategies including foreign money markets. There are dangers there as well, as the world economy has seen and continues to see, a rash of currency devaluations and wild fluctuations.
Your financial advisor can help you find the best savings account for your specific needs. He can direct you to a number of FDIC savings funds, or if you have a higher risk tolerance, can help you locate other investment venues that may provide you higher returns.