Cash in the Bank

A savings account is a savings account, right? Wrong. Savings accounts, CDs, and other cash investments can be great choices for meeting more immediate goals, since your money is safe and easily accessible. But they can vary widely in interest rates, fees, service charges, and potential penalties. So it’s smart to shop around for an account that not only keeps your money secure — but also helps it grow. Take interest in your interestIt’s no secret that the higher the interest rate, the more the account earns. But interest can be calculated in two ways — simple or compound. An account paying simple interest means you’ll only earn interest on the principal, or the amount you put into the account. But an account paying compound interest will pay interest on your interest, too — helping your account grow faster. Another thing to look for is whether you’re charged any fees or commissions for opening an account or keeping it open, since that could take a big bite out of your earnings.

Climbing to your goalsLaddering, or staggering the maturity dates of CDs can give you extra flexibility and allows you to take advantage of higher rates usually offered on longer term CDs. Let’s say you have $7,500 to invest and you are interested in a CD with a three-year term. When laddering, you actually divide your principle across multiple CDs with varying maturity dates. You might buy one $2,500 CD maturing in one year, another maturing in two years and one more maturing in three years. When the first CD matures, you could renew it into the longest term of your ladder, in this case, three years. As each CD comes due, you can easily reinvest it into the longer term. Once your ladder is established, you will have a CD maturing every year, while earning the higher rate of a longer term CD. The good, the bad, and the unexpectedLife is full of the unexpected. That’s why most experts say you should set aside three to six months’ worth of income in an easily accessible, highly liquid account that you can tap when you have unforeseen expenses.
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