Personal Finance Tips – Keep Your Money in CDs and Money-Market Accounts
If you don’t see any potential in keeping your savings in a low-interest bank account, you always have the option of certificate deposits. These will give you higher interest rates, but you will have to keep your CD for a set period that ranges usually from 6 months to 5 years. The longer term you choose the better interest rate you will have.
However, if you decide to withdraw your money from the CD before the term expires, you will be penalized: you will loose about one month’s or a quarter’s interest, depending on how long term your CD was. CDs are very useful for those who always start to spend their savings. The penalty can be a really strong motivating factor to leave the CD alone until the term expires.
Because the penalties of early cashing out, CDs are not as liquid as a regular savings account is. Therefore you may consider having a regular savings account for your everyday needs.
You should start small if you don’t know whether you are comfortable with tying up your savings in a long-term CD. There are 6-month CDs for $500, and if there is no need for the money after half a year, you can roll it into another CD.
Customers usually have a couple of weeks to decide whether they want to cash out their CDs after their term expires or they want to roll it over. If there are no specific instructions, banks and credit unions will roll over the amount of your CD and the interest you earned into another CD with the same maturity and at the current interest rate.
There is another option for those who want to invest their savings: money market accounts. You can earn interest with these without having to tie up your cash for a fixed period of time. Money market accounts are very similar to any other checking or savings account, and these are available at your bank or credit union.
At some banks you have to keep a minimum balance in the account to earn the interest rate advertised, and there may be also fees for these accounts, so it is advisable to shop around and see what the best available offers are. You also have the option to search online for money-market accounts that can be linked to your regular account.
Please note that money-market accounts are not the same as money-market funds. Money market accounts are insured by the federal government, so these are not less risky than money market funds.