Savings Accounts and Certificates of Deposit (CD)

Finding the best way to save money can be tough because you want to find the best way to make the most of your money. The two most popular ways to save are with a savings account or with a certificate of deposit, better known as a CD.

A savings account is an account that usually involves a minimum balance, about $300, and provides you easy access to your money. A certificate of deposit usually has a minimum of around $2500 and earns interest over a preset period of time. You cannot, without losing a great deal of money, have early access to the money you put into a CD.

So which one is the best choice? Well, it all depends upon what you want out of your money. The following are the advantages and disadvantages of both options.

There a several different types of savings accounts. To get the most out of your money, you should look for a savings account that is interest bearing. The interest rate will be low, but earning something is certainly better than earning nothing. A savings account is best if you have less than $2000, or feel it will take you quite some time to reach that amount.

A savings account is also best if you feel you will need fast access to that money. For example, if you are saving money in case of an emergency such as a sudden loss of your job or unexpected repairs then you will need it quickly.

If you have over $2000 and you do not need instant access to your money, than a certificate of deposit (CD) is the better option. Certificates of deposit bear interest either at a set rate or at an adjustable rate. You should opt for the highest rate available. You should also take how much time you can be without access to your money into consideration. The amount of time can range from as little as a few months to several years.

If a minimum balance is a problem for you on a savings account, there is always the option of using a free checking account as a savings account. This will provide you with instant access to your money and eliminate the worry of being charged for dropping below the minimum balance. The only drawback of this is even if the free checking account offers interest, it is very little. This option should be considered if you want to open an account for emergency living expenses. This way you can write checks out of it immediately without going through the hassle of first transferring the money to another account. Even though the bank may refer to your savings as a checking account, how you use it is up to you.

Some banks offer a systematic savings program. This is when you set a predetermined amount of money to be automatically deducted from your checking account and placed into either a savings account or certificate of deposit (CD). This is a great option for two reasons; one, if you are not disciplined enough to ensure that you are saving what you should be and two, if you do not have the money to start up a savings account or CD, but will over time. You can have any amount you want taken out monthly usually from as little as $50. This may not seem like much but at the end of one year, you will have an extra $600 that you likely would not have saved otherwise.