The time has come for you to make the responsible choice and put some money in the bank. However, you might not be sure about your options. With all of the choices out there--who can blame you? CD, APR, ATM, FDIC, GDP, APY, it is a veritable vegetable soup of abbreviations. Fret not fair dollar minder, this article is meant to give you five basics to keep in mind when you decide to step into the world of penny pinching.
The first basic is to remember that the Internet is your friend. The dawn of the Internet allows someone looking for a savings account to find the best rate available. One tool available to you is Get Rich Slowly's updated money market and high-yield saving accounts page. This page is updated each month and helps you find the best rate possible. There is even a drop-down box that allows you to search for either money market accounts or certificates of deposit (CDs). Use these rates to your advantage and make sure that you shop around to find the best rates for money market accounts, high yield money market accounts, savings accounts, or certificates of deposit.
The second basic is to take a look at money market accounts. Not familiar with money market accounts? No problem. In the simplest terms, a money market account is a savings account with a higher interest rate. The caveat to the higher interest rate is that there are normally restrictions like minimum balances or limited transactions. A money market account will have a higher interest rate and less risk than a savings account. Often times, you will see a money market account referred to as a high-yield savings account.
Perhaps you are in the market to open a plain old checking account. If this is the case, the third basic is to know that there are online checking accounts that could yield a higher interest rate than some savings accounts. For example, this article from Get Rich Slowly focusing on online checking accounts notes that ING Direct's Electric Orange high-yield checking account can top the same company's savings account. The problem is that you need to have more than $100,000 dollars in your checking account to get the return. That is a lot of money and not a sum that many have readily available in a checking account. Don't worry though--there are still ways to get even better rates with your checking account. Make sure to read the article about online checking accounts to find out how. The article notes that one should be ready to look for alternatives to the physical bank, such as a credit union or the aforementioned money market funds.
The fourth basic is to know that annual percentage yield (APY) is different than the annual percentage rate (APR). APY is calculated the same way at every bank, while APRs will vary from bank to bank. When you are investigating banks and bank accounts, make sure to ask for the APYs of each account, not just the APR or the interest rate.
The final basic is the tried and true certificate of deposit (CD). CDs are aptly described as time deposits because you deposit your money and don't access the cash for a certain amount of time. The longer the bank keeps your money, the higher the interest rate. A six-month CD might boast a 3.5% interest rate, while a 60-month CD may yield 4.25%. The largest drawback to a certificate of deposit is it is far less liquid than a regular savings or checking account. You can withdraw money from your checking or savings account whenever you like, but you are penalized for taking money out of a CD before your pre-determined time period.
Remember, knowledge is power as you begin to investigate the best place for your hard-earned money. These five basics are just the beginning of your exploration into making your money work for you. Make sure to use all of the tools at your disposal, especially here at Get Rich Slowly. Remember, it was the tortoise that won the race, not the hare.