It’s All in the Account
Choosing the best account for your goals so your liquid savings plan can succeed.
By Amy Persyn
When you are building something, you need tools and a plan. Whether you want to build a table, or build your savings, having the right tools is critical. Knowing how the tools work is equally important. If you’re trying to build a successful savings plan, choosing the account that best fits your savings objectives is an essential part of your personal banking plan. While aggressive savings tools can be an important aspect of a long-term savings strategy, we’ll focus here on FDIC-insured bank accounts that provide some growth, different levels of access, and safety.
For many of us, our first bank relationship started when we were kids with a simple “passbook” savings account. This account allowed us to start a habit, take advantage of the security of a bank account, and the ability to earn a little more than in a piggy bank at home.
Today, I recommend a traditional savings account that can be connected to your checking account to cover unexpected expenses, for increasing cash flow from time to time when your checking account is tight, or as an account in which to “sweep” unused funds in excess of your budget so you can earn interest on those funds. A basic savings account typically pays a more nominal rate and is not ideal to use to accumulate large balances.
Certificates of Deposit (CDs)
A certificate of deposit (CD) is a savings account in which you commit to keep the funds deposited for a set term. Typically, the longer the term, the higher the rate you can expect to lock in. CDs are secure and because there are typically penalties for withdrawing funds prior to the maturity date, you are more likely to leave your savings to grow rather than withdrawing them for other needs. In today’s rate environment, it is highly advisable to look for specials on CDs.
Money Market Accounts
A money market is a savings tool that gives account holders access to their funds, while often earning a higher rate than a traditional savings or interest-bearing checking account. A money market could be the right tool for you if you are looking for a place to stash your emergency fund, while having access to your money if it’s needed.
It’s important to exercise caution with accessing your money market funds, though, because there may be limits to how many withdrawals you can make in a single statement period. It’s all in the account. Choosing the best account for your goals so your liquid savings plan can succeed.
An interest-bearing checking account gives you full access to your funds with no limits, but these accounts don’t often earn a hefty interest rate because of their usage and balance fluctuations. However, these accounts are a simple way to ensure that your balances in your cash flow account go to work for you.
The Best Way is Starting a Habit
There’s really no wrong way to save. Many Americans are not saving at all. However, with information and a plan, you can make the most of your efforts and reach your goal faster. When you’re deciding where to keep your savings, consider a community financial institution. Choosing a community financial institution is one way you can take advantage of personalized service and accessibility, while having a positive impact on your local neighborhoods.
When you deposit your funds in a local community bank or credit union, those funds are invested in your community, as small business loans, home purchase loans, and more. Community institutions, like First State Bank, are typically mindful to support initiatives that improve or enrich the areas they serve which ultimately contributes to better quality of life for you and your family.
Amy Persyn is a lifelong Macomb County Resident. She is passionate about connecting families and entrepreneurs with information that can help them become empowered and financially literate.