Your ultimate guide to savings accounts: where to invest, their differences, and everything you need to know…CD’s, High Yield Savings, MMA’s.
Some personal insights on the importance of APY accounts and how to use them (opinion based)
Vocabulary:
- Compounding= gained percentage of interest
- CD= Certificate of Deposit, a compounding savings account
- MMA= Money Market Accounts, a compounding savings account
- APY= Annual Percentage Yield, the annual gained interest of your account
Disclaimer!:
All of the accounts discussed in this article are subject to taxation based on the income you make from the interest. When looking at CD’s, MMA’s, or High yield’s, be careful that some banks do require monthly fees as well
Presently, inflation is at its highest and we are being forced to find new ways to increase our revenue. The information we need is being withheld from us and that leaves a large percentage floundering to create side income ideas. Lucky for the unity in our communities, we no longer have to feel alone in our endeavors. I will explore, in-depth, the difference between each APY accounts that benefit you; instead of wasting your money in income sucking checking accounts WITH monthly fees. So let’s unlock the mystery behind these accounts. And trust me, these are much less complicated and easier to access than you think.
CD’s (Certificates of Deposit):
CD’s, also know as Certificates of Deposit, are simple savings accounts of fixed amounts for a fixed time at a fixed compound rate, which means you are unable to deposit or withdraw money from this account until the time of its accruement has expired. The growth is at an annual percentage, usually between 4-5% depending on the bank you open it with, equaling to around 0.02% every day. Your best bet of getting the most out of your CD is to take as much as possible and make a grand deposit to get a decent return. The only downside to this strategy is the inaccessibility to your money, which makes it difficult to plan for accidents. Another great option could be to divy up your assets and create a CD ladder. Opening various accounts with different amounts, and different times for when they expire.
Facts and Features:
1. CD apy rates are different depending on the fixed time you have them open for
2. Some accounts don’t require a minimum deposit, but others will. Each bank has different rules for how they allow CD’s to be open.
3. Fixed rate doesn’t allow you to remove or add money. This means you’re prohibited from spending the money, but also that you won’t have access if there were to be an emergency.
4. Some account options may require a monthly fee
High Yield Savings:
High yield savings accounts are very similar to CD’s, the main difference is your accessibility to the money. It is a fixed rate, but the income can vary, depending if you deposit more, or if you remove money from the account. The annual percentage yield is also usually between 4-5% depending on the bank you open it with, around 0.02% daily accruement. If you’re looking for more flexibility with your money, a high yield savings may be more of where you’ll be looking to gain minimal interest as you figure out the next investment option for your money. Although the fixed rate will most likely need a minimum before the account expires and you are able to fully move your assets from the account. Each bank has its own set of requirements that need to be met to open an account with them.
Facts and Features:
1. The plus side of a high yield savings is the benefits they promote, whereas CD’s are more inflexible, High Yield Savings have referral programs, and/or reward programs for depositing a certain amount into the account.
2. You have more access to the money, while having a small exception of how many times you can remove a month, which makes it more ideal for emergency funds.
3. You can deposit more throughout the fixed period which will increase your APY return
4. Some account options may require a monthly fee.
MMA’s (Money Market Accounts):
MMA’s, or Money Market Accounts, are similar to the previous 2 accounts, but their APY’s generally have the highest interest rate. Their average rates are between 4.75% to 5.60%. They have less restrictions, and certain MMA accounts can come with debit cards and limited check writing privileges. This account tends to have the most leniency which makes it ideal for short term goals. But with an account with more leniency and accessibility, they do tend to have more requirements for minimum deposits and possible monthly fees. These accounts are also insured so if anything were to happen, your money is safely stored, do check with the bank you decide to open with as some will not have insurance policies.
Facts and Features:
1. High apy rates that compete with the other accounts to provide a higher interest return
2. Minimum deposit that makes it difficult to remove money from the account
3. Though there are spending limits, this makes it easier to manage your spending and prevent from going over budgets.
4. However, some account options may require a monthly fee
P.S. As a freelancer, or small business owner who works under 1099 forms, these accounts could be ideal for your business. Especially saving your 30% from each pay period. Which can be collected and deposited into a short term APY account that is removed before tax time to gain a small interest that can be reinvested into other financial options for your company or future endeavors. (Just some insight and suggestion that could turn your money into a vehicle for compound interest)
CD’s, high yield savings, and MMA’s, are low risk, usually insured, low reward savings, used to help you gain some interest. CD’s are useful for tax purposes or small short term savings goals. High yields have investment purposes for emergency funds. MMA’s can be repurposed checking accounts to manage your spending while also giving you small investments. If you have a small to moderate amount of money left to the side, untouched – I suggest looking into one of these options to gain a small amount of interest on it. There isn’t much use for them as long term savings or retirement savings accounts. Alternatively, you can take a giant amount of income and use these accounts as temporary investments. This will help until you have a stable financial plan that compounds your revenue.