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Is it right for you?

We are all aware of the need for saving part of our monthly income for emergencies, college education, travel, retirement; whatever isn't a monthly expense. OK, you have committed to save, but where should you put your money? You probably have a savings account at your credit union or bank. It may be connected to your checking account to make transferring money easy. You might even be able to access the money from an ATM or move it electronically. A savings account is a convenient way to save money, but your money might not be earning much. Look at the interest rate. You could be earning anywhere from less than 1% to more than 4%. When you take inflation into account, you may even be losing money. The best thing about a savings account is it is the most convenient place to stash your money.

Certificate of deposits or CDs and money market accounts are popular ways to save. But what's the difference? CDs are issued by banks. The interest rate earned is usually higher than a straight savings account. The interest earned on a CD is for a pre-set length of time, ranging from a few weeks to several years. The interest rate is higher the longer you let the bank have your money. This is a low risk investment because it is insured by the FDIC for up to $250,000. The investor knows from the outset the total amount the investment will earn. However, the investor won't have access to the money until the pre-set length of time is up.

A money market account has many of the same benefits as a CD. In addition, it usually has the feature of check writing. Usually the withdrawals from a money market account are limited, often to four withdrawals a year. The larger the account balance, the better interest rate you may be able to get. There is no set time for maturity so you can get your money any time.

Don't confuse a money market account with a money market fund. Unlike a CD or money market account, a money market fund is not insured by the FDIC. Rather than being offered by a bank, a fund is offered by a brokerage firm. The market fund is a pooled group of relatively conservative investments like government treasury bills, savings bonds, and certificates of deposits. Your investment depends on how the market does. You cannot predict the interest your investment will earn.

When deciding which of these methods of savings is best for you, determine if easy access to your money is the most important feature or earning interest is better. Decide if you want an insured investment or are willing to take a risk, however slight. The important thing is to be saving a pre-determined amount of money every pay period or every month and stick to it. Feed the pig!

Shawn Harrell, MS, RN

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Title Annotation:Money CPR
Author:Harrell, Shawn
Publication:Arizona Nurse
Date:Feb 1, 2016
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