March 26, 2011

Choosing the Best Savings Account For Short or Long-Term Interest Yield

There is a great deal of variation when it comes to different types of savings accounts and the rates that they can provide you with. Considering that many banks automatically create a savings account along with any checking account, most people already possess some sort of savings account. Unfortunately, these basic accounts will often offer rather low APY or annual percentage yield depending on the particular bank and plan you are signed up for.
The very first step towards making the right choice is knowing the difference between the many types of savings accounts that are available:
Money market accounts and money market deposit accounts (MMDA) usually provide investors with a slightly higher interest rate than standard savings accounts. However, due to the difficult economic times that we are currently going through as a whole, the average standard savings account is currently offering a higher yield than the average money market account - a fact that has only recently come into light. This form of savings account is essentially a deposit account offered by a bank that will take your money and invest it into various sections of the money market (commercial paper, treasury bills, certificates of deposit, federal funds, etc.). The interest rates that are given through a money market account fluctuate based on the current interest rates in the money markets.

MMA and MMDA accounts usually have a rather high minimum balance rate due to the high interest rates offered to investors, but hold no penalties for withdrawals above the monthly minimum. Additionally, MMA accounts generally allow for a certain amount of withdrawals or checks written each month, making them something of a cross between a standard checking and savings account.
 CD accounts or "time deposits" offer the highest interest rates and APY of any other savings account. Along with the high return on investment, these accounts require that your money be invested for a predetermined amount of time without being touched. In the event of an emergency, withdrawals can still be made but not without substantial penalties being applied to your account and not without a prior notice.
Opening a regular savings account is by far the easiest and most direct approach. Most of these accounts do not require any minimum monthly activity, and the minimum initial deposits will vary from bank to bank but are usually rather low. Standard savings accounts can be deposited into and withdrawn from an unlimited number of times, making this account ideal for people who would like for their money to always be available to them.

The current average interest on savings accounts in America is at 0.54%. Although this is not one of the most desirable rates when compared to previous years, this interest rate will almost always be as good or better than a money market account in today's market.

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