Savings vs. Investing - Part 2

Saving vs. Investing – Part 2

Written by Nathan Woolard

Part Two of a three-part series

Part One of Saving vs. Investing discussed the key differences between the two to help you decide which route is right for you.  If you feel saving is what you need to do, savings accounts, money market accounts, and CDs can meet your needs.  But which one is the right fit?  Consider these factors:  interest rates, how much money you have available for an opening deposit, will you want to deposit additional funds after opening, and when and how will you want to access your money?

Savings Accounts

• Savings accounts offer a variable interest rate.  This means your interest rate can change after you open your account.  You’ll benefit if your bank increases its savings rate, but if they decrease their rate, yours will decrease too.

• Savings accounts generally require a low minimum opening deposit, usually $100 or less.

• Additional deposits can be made anytime.

• Few savings accounts offer debit cards or checks.  However, you can access your money through in-person withdrawals, ATM withdrawals, or by transferring money to your checking account.

Money Market Accounts

• Like savings accounts, money market accounts also come with a variable interest rate.

• Money market accounts typically require a larger minimum opening deposit than savings accounts, anywhere from a few hundred to several thousand dollars.

• Like savings accounts, additional deposits can be made anytime.

• Most money market accounts include a debit card and/or paper checks, giving you easy access to your money.  This feature makes money market accounts very useful as an emergency fund, but it can also be a temptation to draw from your hard-earned money when not absolutely necessary.

CDs (Certificates of Deposit)

• CDs offer a fixed interest rate.  Once you open a CD, your rate won’t change.  If your bank’s rates drop, you hold onto the higher rate.  But if a bank’s rates go up, you won’t get to take advantage of the higher rate.  Banks also tend to offer higher interest rates on longer-term CDs, so be mindful of this when choosing the term length.

• In general, the minimum opening deposit for CDs is high, possibly several thousand dollars.

• Unlike savings and money market accounts, you cannot add more money to your CD after opening.

• While you can access the money in a CD, if you withdraw before the maturity date, you will incur a penalty.  If you do need to make a withdrawal, most banks will require you to withdraw the entire amount.

In Part One of this series, we stated that there is virtually no risk to depositing money in savings accounts, money market accounts, and CDs.  “The FDIC – Federal Deposit Insurance Corporation – is an independent agency of the U.S. government.  The FDIC protects you against loss of your deposits if an insured bank fails.  Success Bank is an FDIC-insured bank.  The standard deposit insurance amount is $250,000 per depositor, per insured bank, for each account ownership category,” says Brad Woolard, Executive Vice President and Chief Operating Officer of Success Bank.  For more comprehensive information, and examples of deposit insurance coverage, you can visit https://www.fdic.gov/deposit/deposits/brochures.html#your_insured_deposits 

Keep in mind, account guidelines and requirements can and do vary by institution, as will service fees.  Search our website for information specific to Success Bank’s accounts or contact one of our Personal Bankers to answer your questions.  When you are ready to open an account, we’re here for you!  

The third and final installment of Saving vs. Investing is coming soon!