4 Things to Know About Savings Options

If you are ready to kick-start your savings plan, begin by investigating the many savings options available to you: a standard savings account, a money market account, a U.S. savings bond, or a certificate of deposit. Be sure to understand the pros and cons of each savings method before deciding which is best for you:

1. Savings accounts are offered by banks and credit unions. They offer low minimum balances and are considered among the safest places to put money.



Pro: They earn a guaranteed rate of interest, can be government insured, and usually make it easy to withdraw money.

Con: Standard savings accounts typically offer the lowest interest rate compared with other methods of savings.

2. Money market accounts are offered by many banks and credit unions. They work like checking accounts and typically pay a higher rate of interest than savings accounts.



Pro: You can take out money at any time, usually without a penalty.

Con: They may require a high minimum monthly balance—$1,000 to $10,000—to avoid fees. Additionally, you may be able to write only a limited number of checks during each statement cycle.

3. U.S. savings bonds enable you to loan your money to the government and, in turn, the government agrees to pay you a specific interest rate over a period of one to 30 years. At the end of that period, you get back the full amount of your initial loan. 



Pro: Savings bonds interest rates are typically higher than interest rates for savings accounts.

Con: If you cash in your savings bonds within five years of purchase, you are subject to a penalty of three months' interest.

4. Certificates of deposit (CDs) enable you to loan your money to a bank or credit union for a set period of time—typically three months, six months, one year, two years, or longer.



Pro: The bank pays a set interest rate on your money over that time, adding it to the initial amount of the CD in increments. When the CD “matures” (reaches the end of the agreed- upon time period), the bank returns the full amount plus the accumulated interest. The rate can be higher than for savings accounts.

Con: To earn a higher interest rate, you have to agree to a longer maturity date. If you take out money before the maturity date, you may have to pay a penalty.

If you want to learn more, talk with a bank or credit union representative, or look at the information provided on your financial institution's website. Additionally, you can find information on a variety of savings options at www.bankrate.com.

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