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Four Types of Savings Accounts: Which Is Right For You?

4 types of savings accounts
Written by Nimda

Financial advisors suggest that everyone has a savings of some sort if it is at all possible. Most people run into unexpected hardship from time to time, and these events can really damage a budget. Also, savings can help you plan for larger expenses, including vacations, automobiles or higher education. Whether you have a goal for your savings or simply wish to stow away some cash for emergency purposes, there are plenty of ways to make a deposit toward financial security.

Bonds

Bonds, also called term accounts, are among the most secure ways to save money. You make a deposit to a bank or credit union for a term between one to five years. During this time you are unable to access the money, or if you are allowed to withdraw, you will incur hefty penalties for not allowing the bond to reach maturation. Bonds offer competitive, fixed interest rates, but you are usually unable to add money to a bond after it has been purchased.

Regular Savings Accounts

If you simply wish to have a back-up source of funding in case of emergency, a savings account at your local bank or credit union is a good place to deposit. Usually, these accounts require a nominal initial deposit, and you are free to withdraw funds whenever you deem necessary. While credit unions typically offer a higher interest rate on savings account than national bank chains, this is not always the case. It is a wise idea to shop around to maximize your savings.

Money Market Savings Accounts

money market savings accountsIf you have a sizable sum to invest, a money market account could be a viable option. It pays a much higher interest rate than traditional savings accounts, and the reason is two-fold: First, funds deposited into a money market account are used by the bank extensively. They become savings bonds,
loans and certificates of deposit for other bank customers. In exchange for allowing it to use your large sums of money to generate more profit in the form of interest rates charged to other borrowers, a financial institution will pay premium interest rates on your account. Second, you are required to keep a large minimum balance and have restricted access to your funds. A money market account can, in most cases, only be withdrawn from between three and six times per month, but you may also be given checks, which can be used an additional three times each month.

Certificates of Deposit

For long-term savings, there is probably no better choice than a certificate of deposit; however, you may need to begin with another type of account before you reach this option. To acquire a certificate of deposit, a substantial initial deposit is required. Your financial institution forms a contract with you, which allows them to use your money in manners similar to a money market account for a specific length of time. You can make a certificate of deposit for several weeks or many years, and your interest rates increase with the longevity of the contract. In exchange, the bank guarantees an interest rate for the length of the agreement. However, the funds in a certificate of deposit account should be forgotten about. Early withdrawal from these accounts results in massive penalties.

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Nimda