Once you start to save money, keep your savings in a safe place. You don’t want your money stolen. Many people keep their savings under their bed, in the freezer, or somewhere else in their home. These are not good places to keep your savings.
A savings account at a financial institution is a safe place to keep money. Look for banks and savings and loans that are insured by the Federal Deposit Insurance Corporation (FDIC) or credit unions that are insured by the National Credit Union Administration (NCUA). Checking, savings accounts, certificate of deposits (CDs) and money market accounts at these institutions are insured up to $100,000.
A savings account keeps your money safe for short-term goals. It’s a safe and convenient place to put your money on a regular basis. You can take out your money whenever you want.
One disadvantage to savings accounts is they often pay a low rate of interest. Banks, savings and loans, and credit unions offer other options, such as a money market account or a CD (certificate of deposit.) These options require larger deposits to open.
A money market account or a CD usually pays a higher interest rate than a savings account. However, you will not be able to withdraw your money as easily.
When you open a CD, you agree to leave your money in the CD for six months or a year or longer. If you take the money out before the date, then you will pay a penalty. That costs you money. Use CDs for goals when you know you won’t need the money before it matures.
Before opening a CD, ask yourself’
• How long am I comfortable with leaving my money in the CD?
• How much is the penalty if I have to unexpectedly withdraw the money?
• Are there any fees to open or maintain the CD? Look for one without fees.