With personal savings playing an increasingly larger role in people's financial lives, understanding how to maximize the benefits of a savings account is important if you want to get the most from them. Today, people are faced with numerous choices when it comes to their savings, and, with the availability of online banking that can't put your savings account at your fingertips, the need for an effective savings strategy is greater than ever.
The primary factors you need to consider when choosing a savings vehicle are: Your
savings time horizon (i.e., less than a year; more than five years); and, your savings need
(i.e., emergency fund, college expenses, retirement).
Developing Your Savings Strategy
Most people start out by opening a savings account which can suffice for basic savings needs. As your financial situation changes and your savings balance grows, you may be able to benefit from additional savings options that can increase your returns and solve for specific financial needs. Here is an example of a three-tiered savings strategy using three different vehicles:
Start Basic: Everyone should have a basic savings account for short term needs. These accounts require a minimal amount to start and can be linked to a checking account for easy transfer of fund, to and from. They generally offer the lowest interest rates; however, they provide greater access to funds.
Earn Higher Rates: Once you have accumulated a sufficient short term fund, you could have your savings that exceed a target threshold, transferred in to a money market account. Money market rates tend to be higher than savings rates and they provide some access to your funds. Most money market accounts require a higher minimum deposit and also have minimum balance requirements, so these should be used for longer term needs.
Think Long-Term: With a short term savings and a money market account as your liquidity cushion, you could then consider a Certificate of Deposit for higher returns. CDs are time deposits of varying maturities. The longer the term of the deposit, the higher the interest rate that is credited.
Selecting the right type of savings vehicle comes down to your individual preferences, savings time frame and savings objectives.
______ Bank Savings Accounts
_____ Savings: Designed for businesses with growing cash flows, the ____ Savings account offers the greatest amount of liquidity while providing competitive short-term savings yields with interest compounded quarterly. There is no minimum deposit or minimum balance requirement. While there is unlimited access to funds through checks, withdrawals and transfers, Federal regulations limit the number of withdrawals to six per month. All of your savings account activities can be tracked and managed through business online banking services.
_____ Money Market Account: Similar to a high-yield savings account, money market accounts offer the benefits of higher returns along with limited access to funds through checks, withdrawals and transfers. Our money market account offers a tiered interest rate structure so higher balances can earn higher rates. There is no monthly service fee, however, a minimum balance of _____ is required to earn interest which compounds daily and is paid monthly. Our money market accounts are FDIC insured up to the legal limits. Federal regulations limit the number of transfers to six per month.
_____ Certificates of Deposit (CDs): For larger savings deposits earmarked for a longer term time horizon, FDIC-insured CDs offer the highest possible fixed rates for a low-risk savings option. The minimum deposit is ____ with terms ranging from 90 days to five years. There is a substantial bank penalty for early withdrawal. Upon maturity, the balance can be automatically rolled into another CD or transferred into another business account.
Savings are an essential element of your financial picture. Knowing your options, and building a strategy around your preferences and needs can ensure that you get the most from your savings accounts. For detailed information on our any of our savings solutions contact a ____ personal banker at XXX-XXX-XXXX or visit one of our convenient banking centers at a location near you.
We are members of FDIC so all deposits are insured up to $250,000 per depositor, per ownership category. To learn more about our FDIC membership, go to www.fdic.gov and search for our name under Bank Find.