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Best Place to Invest Your Money

citizansbank — Mon, 05 Mar 2012 21:42:55 +0000

So, you’ve set up an automatic savings program and you’re finally building up that emergency fund, but where should you keep your savings so that it earns the most interest for you? Luckily, there are many different savings vehicles available, but not all of them are appropriate for every situation.

Savings Accounts

Most likely, you have already established a savings account at your local bank or credit union, and you may have this linked up directly to your primary checking account to make transferring money to savings easy. A savings account is the most convenient place to save money, but it might not be putting your money to work.

When using a savings account, it is important to look at the interest rate. Depending on where you bank and what type of account you have, you could be earning anywhere from less than 1% up to 4% or more. The problem is that many banks only provide high interest rates for significant balances over a certain amount. If you find you are only earning 0.65%, after accounting for inflation, you are actually losing purchasing power.

The best thing about savings accounts is that they are completely liquid. This means you can access your money on very short notice. You may be able to go online and transfer money from savings to checking, withdraw from an ATM, or stop into your local branch.

Money Markets

In addition to your basic savings account, you may encounter another savings vehicle called a money market. There are actually two different kinds of money market accounts: money market bank accounts and money market mutual funds.

Money market accounts offered by your bank work almost the same as far as the consumer is concerned, but since the money held in a money market account is invested a bit differently, there are usually more restrictions on the account. Typical restrictions are usually higher balance requirements and a limited number of withdrawals per month or quarter.

Money market mutual funds are not issued by a bank, but are offered by investment companies. You would need to have an existing brokerage account or establish a new account with the fund company directly to take part in a money market mutual fund. These funds invest in various short-term investments collectively in order to produce an attractive interest rate. Unlike a money market account at your bank, these are not FDIC insured.

Although money market accounts generally have higher interest rates than a savings account, the restrictions on the number of withdrawals per month or the requirement of opening a separate account makes these funds slightly less liquid.

Certificates of Deposit

A certificate of deposit, otherwise known as a CD, is another place to save money that is routinely offered by your bank. A CD is a time deposit, which means that the money you place on deposit must remain there for a specified amount of time before you can withdraw it.

You can purchase a CD with a variety of time frames as short as one month to upwards of many years or more. In most cases, the longer you agree to leave your money on deposit, the more interest the bank will pay you.

Since you are required to leave your money in the CD for the amount of time selected, this can make your money less accessible than a savings or money market account. This can be a good thing, since it encourages you to leave the money alone, but in an emergency where the money is needed very quickly, this can be a hindrance. Fortunately, you can access your money before the CD matures, but the bank will impose a penalty which could effectively wipe out the interest you have earned.

Savings Bonds

Another possible option for your savings is in savings bonds. Savings bonds are issued by the U.S. government and are backed by its full faith and credit. Similar to CDs, savings bonds have a maturity date set in which the bond reaches the maximum value. In most cases, this is 20 or 30 years.

Savings bonds are credited interest each month and you can cash in a savings bond at any time, although doing so prior to maturity may result in foregoing some interest. You can purchase savings bonds at most banks or online at Treasury Direct.

Like CDs, you may encounter liquidity issues with savings bonds since they are purchased separately and you can only receive money from them through redemption at either a bank or by mail.

What is Right for You?

When it comes to savings, there isn’t a right or wrong answer. It ultimately depends on your needs. If you are using your savings for overdraft protection and want to have it available instantly in the event you need it, a savings account might be the most appropriate. If you are saving for a large purchase or something predictable a few months or years down the road, you can probably find better rates with a CD or possibly a money market fund.

For many people, it comes down to having a mix of multiple savings vehicles. There will be part of an emergency fund in a savings account at the bank, possibly some cash in a money market fund in an investment account, and some CDs or bonds stashed away for longer-term savings. Whatever the case may be, you want to make sure your money is working as hard as it can.

What Is the FDIC and How Does It Work?

citizansbank — Mon, 05 Mar 2012 21:42:22 +0000

The Federal Deposit Insurance Corporation (FDIC) was set up as a response to the number of bank failures during the Great Depression in the 1930s. It is an agency that is backed by the government and insures the money that you have deposited in your bank in the event that the bank fails. If you are a member of a credit union you will receive similar coverage through the National Credit Union Administration (NCUA). It is important to check to make sure that your bank or credit union is a member of one of these associations so that your money is protected.

Answer:It is important to fully understand the FDIC guidelines so that you can take advantage of them. The FDIC will only guarantee the first $100,000 dollars in your account. Some retirement accounts may be insured up to $250,000.

The accounts that are insured are deposit accounts such as checking accounts, savings accounts, money market savings accounts, IRAs, and CDs. They do not insure any investing accounts that you may have through the bank, such as mutual funds, annuities, stocks and bonds.

If you have three accounts are in your name only at a bank, and the total is more than $100,000, then only the first $100,000 is guaranteed. It is important to understand how this works so you can protect yourself. If you have more money than this you should consider opening accounts at different banks (not different branches of the same bank) to protect your money.

If you have joint ownership of an account and an individual account you may qualify for more insurance. For example if you have an account that you are the sole owner of, and a joint account with your spouse, each of these accounts will be looked at separately to receive the FDIC guarantee. Additionally if your spouse has an individual account as well, then that money would be insured as well.

If your bank were to fail you would need to contact the FDIC to find out how to receive your money. The FDIC is not required to give notice before shutting down a bank, but does post contact information, so that you can know the steps you need to take to get your money back. You can call them at 877-ASKFDIC or at www.fdic.gov.

Before You Open an Account

citizansbank — Mon, 05 Mar 2012 21:40:01 +0000

When it comes time to open up your first checking account or you are moving to a new area and are shopping for a new bank, you should carefully consider all of your options. Generally, your choices can be broken down into three specific categories.

Large Banks

A large bank offers several advantages. One of the best advantages is that you can move your account with you when you are transferred to a new area. You may also be able to find the bank’s ATMs when you travel. Larger banks offer a wide variety of account options and services. One of the biggest disadvantages is that you are simply an account number to them. You may build a good relationship with a particular branch, but the corporate officers make most of the decisions when it comes to handling your account.

Small Banks

A small bank is more focused on customer service. You may choose a small regional bank or an even smaller local bank. These banks offer several accounts, but they may not be able to do as much as a larger bank. You may not be able to exchange foreign currency at a small bank, but your account does matter to them. Often the people you interact with do make the decisions regarding your account. The biggest downside is that you will have to change banks when you move. You will also have to use other ATMs when you travel.

Credit Unions

A credit union operates differently than a bank. When you join a credit union, you become a member instead of an account holder. A credit union is a non-profit organization. This means that the products that it offers have better interest rates in favor of you the consumer. You can find lower interest rates on loans and higher interest rates on your savings accounts. The customer service is usually much more friendly as well. The fees associated with accounts are much lower as well.

A Combination of the Three

You may decide to go with a combination of accounts. You can have your checking account at a larger bank if you travel a lot, but have your loans and savings accounts through your local credit union. It is important to carefully consider all of your account options before making your choice.

Money Market vs. Certificate of Deposit

citizansbank — Mon, 05 Mar 2012 21:33:41 +0000

One of the biggest questions investors face is, “what do I do with my cash when I’m in-between investments?”. This article seeks to examine two of the most popular choices – certificates of deposits and money markets – and weighs the pros and cons of each.
In the left corner: certificates of deposit

Certificates of deposit (or CDs for short) are debt instruments issued by banks and other financial institutions to investors. In exchange for lending the institution money for a predetermined length of time, the investor is paid a set rate of interest. Maturities on certificates of deposit can range from only a few weeks to several years with the interest rate earned by the investor increasing in proportion to the time his capital is tied up in the investment.
Pros: The investor can calculate his expected earnings at the outset of the investment. Certificates of deposited are FDIC insured for up to $100,000 and offer an easy solution for the elderly who desire only to maintain their capital for the remainder of their life.

Cons: If the investor opts for a longer maturity and, thus, higher rate of interest, he will lose access to his funds and forgo alternative uses of his capital.

In the right corner: money markets

Money markets, on the other hand, offer many of the same benefits as certificates of deposit with the added features of a checking account. Technically speaking, a money market is more or less a mutual fund that attempts to keep its share price at a constant $1. Professional money managers will take the funds deposited in the money market and invest them in government t-bills, savings bonds, certificates of deposit, and other safe and conservative financial instruments. This income is then paid out to the owners of the money market.
Investors can open a money market account at most financial institutions. They generally receive a checkbook with which they can draw upon funds in the account.

Pros: Depositing money in a money market is as easy as depositing cash into a savings or checking account. Cash is immediately available for alternative investments.

Cons: Some financial institutions place a limit on the number of checks that can be drawn against the account in any given month. The rate of interest is directly proportional to the investor’s level of deposited assets, not to maturity as is the case with certificates of deposit. Hence, money markets are disproportionately beneficial to wealthier investors.

The verdict

Although both can be useful, for those who need access to their capital, money markets are far superior. Many brokerage houses automatically sweep their customer’s uninvested cash into money markets to earn interest between investments. This is the ideal solution if you regularly invest because the funds can be used immediately to purchase stocks, bonds, or mutual funds.