12/01/2010

Information on Savings, Bonds, and CDs


A savings account is a banking account used to hold money. When you have your money in a savings account, that money earns interest. Your bank savings account pays a rate of return on all the money in the account (your APY). That means that you get "paid" for keeping your money in the account. Savings accounts also offer a safe place to keep money. Your bank is responsible for safeguarding that money. Sometimes, but not always, banks charge fees for having a savings account. The fee may be or it may be higher, or it could even be based on your balance. For this reason, you should always shop around and compare what different banks are offering.
When you open your account you’ll get a small booklet called a register for tracking your savings.
Remember:
  • Don’t forget to write down withdrawals and deposits.
  • Each month, your bank will send you a statement via mail, or e-mail. Make sure to go through these on your statement and make sure that the transactions match up. If not, review your register.
Bonds are essentially loans. When you buy a bond you lend money to a company and the company in return pays a certain amount of interest on your bond called the coupon. When the bond reaches maturity the company pays the original amount on the loan. Bonds often have a fixed interest rate, but there are also floating-rate bonds which interest changes with the market.
Bonds fall mostly into three categories:
  • Government
  • Municipal (issued by states, cities, counties, and districts)
  • Corporate
CDs (Certificates of Deposit) are a great step after some savings have been established and offer higher interest rates than savings accounts. However, there is a drawback—you can look but can’t touch these savings, at least not without an early withdrawal fee. These savings are long term, some lasting three months, and others for a period of years.
This is a good step if you are saving for retirement or any other long term goal. Also like savings accounts, CDs earn compound interest. Remember to shop around when considering depositing your money into a CD. If that seems too long to wait, or you want more access, money marketing accounts are also offered by some banks and credit unions. They work like regular savings accounts and have higher interest rates. However, the minimum balance also is higher, and this account only allows a few withdrawals per month.
 A bond differs from a stock because it is a loan. Instead stocks represent partial ownership in a company and the profits that a company has made. 

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