For most people, the idea of saving money comes well before the act of investing it. We have to build up our nest egg before we start sinking our dough into investments, after all. (And we don’t want to start stuffing our portfolio with stocks without having something set aside for emergencies.) So that leaves us with a very common question: where do we keep that cash? Unless you’re the mattress-stuffing type, you’re probably considering the array of options offered by your bank, such as savings accounts, passbook accounts, and money market accounts.
Which is best? Well, that all depends on you. Take a look at the following five tips, each designed to help you make the best savings decision:
Storing your emergency fund:
Learn about the options.
You have a variety of options to choose from, so you’ll want to start by learning about them in detail. When it comes to banks and credit unions, you’ll mainly be looking at savings accounts, money market accounts, and certificates of deposit.
We’ve provided plenty of informative articles about these options, so feel free to read through them.
Determine how much access you’ll need.
One major difference between the various vehicles is the amount of access you’ll have to your funds. Will you need to dip into that money from time to time, or can you just stash it away and forget about it? If you’re able to keep the hands-off approach, you’ll likely benefit most from a CD.
If you’ll need to make withdrawals on a regular basis, then the savings account is the best way to avoid penalties. Money market accounts split the difference, offering you some access to your funds, but with caveats.
Compare interest rates.
Interest rates vary quite a bit depending on the institution, the type of account, and the amount of money you are depositing. The length of time that you’re willing to leave the money untouched also plays a part when you’re discussing CDs and bonds. Make sure you’re getting the best interest rate for your situation.
Look at the fees and penalties.
Make sure you fully understand all of the fees associated with the various accounts (this will require some deep reading within the fine print.) You’ll need to know what limitations are on each option, and what you’ll have to pay if you break those limitations.
One important thing to look out for is minimum balances, which are commonplace in higher-interest savings accounts and money market accounts.
Size up the services and perks.
Are you picky about services and add-ons? Different accounts offer varying benefits, so make sure you’re getting everything you want or need before you open one.