Would You Like To Earn Above 0% On Your Savings?
Most savings accounts today are barely paying above 0%. I am often asked about conservative vehicles for saving or investing money.
One place people often save is in money market accounts. A money market account is an interest-bearing account that typically pays a higher interest rate than a savings account. That’s great, but what are the drawbacks? Minimum account balances can often be somewhere between $25,000 - $100,000. There may be restrictions on withdrawals and even penalties or fees on excessive withdrawals. If your account balance drops below the minimum, you may just be credited interest at the regular savings account rate. A lot of banks use promotional rates to attract new account holders and then drop the rate later.
Another financial product people often use to save money with is CD’s. A CD stands for Certificate of Deposit. This type of account may pay a higher interest rate than a regular savings account or money market account, but also comes with some drawbacks. Banks and credit unions agree to pay a set interest rate for the money you keep on deposit for a set term. Common terms are usually 6, 12, 18, 24, 36, 48 and 60 months. Longer terms usually get you higher rates. What this really means is that you may get a higher return than a savings account, but you are sacrificing liquidity. Many CD’s also have early withdrawal penalties.
The last place I would like to mention is a reduced risk collection of bond-based mutual funds. We have a portfolio of low-risk mutual funds that I loosely call the "Near Cash Portfolio." This portfolio has the potential to have higher returns than CD’s or money market accounts and is completely liquid. While this portfolio doesn’t have the guaranteed returns of a CD or the stability of a money market account, it can still be a great alternative.
I like to use a three-prong test when it comes to conservative investments. This involves asking three important questions: Is the investment low risk? Is the investment liquid? Does the investment provide worthwhile potential returns? No one type of conservative investment has all three, but to me a worthwhile investment must have at least two of these characteristics. Which two are the most important? Well that's completely up to you and your needs.
If you would like to learn more about conservative options to invest your savings please contact us. We have many more options available than what we have provided here.