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The best way to reach financial goals is through saving. Small amounts add up. The amount saved is less important than getting in the savings habit. There are a lot of saving methods, so the idea is to find one and put away at least 5% of your income on a regular basis.
TYPES OF SAVINGS PLANS
The basis for your attainment of financial goals is the accumulation of funds that results from an effective savings and investment program.
Regular Savings Plans:
Regular savings accounts, traditionally referred to as passbook accounts, involve a low or no minimum balance and allow savers to withdraw money as needed. At a credit union, these savings plans are called share accounts.
Certificates of Deposit · A certificate of deposit (CD) is a savings plan that requires you to leave a certain amount on deposit for a set time period (ranging from 30 days to 5, 10 or more years) in order to earn a specified interest rate.
Current information about CD rates at various financial institutions may be obtained at www.bankrate.com. Consider creating a CD portfolio with CDs maturing at different times. For example, $2,000 in a three-month CD, $2,000 in a six-month CD, $2,000 in a one-year CD, and $2,000 in a two-year CD. This will give you some degree of liquidity and flexibility when reinvesting your funds.
Interest-Earning Checking Accounts
Money Market Accounts and Funds
A money market account is a savings account that requires a minimum balance and bases earnings on market interest rates. Money market accounts allow savers to write a limited number of checks to make large payments or to transfer money to other accounts.
U.S. Savings Bonds
In the past, buying U.S. savings bonds was a patriotic act rather than a wise savings choice. In order to compete with other savings plans, the Treasury Department now uses a floating rate on savings plans.
Redeemed Series EE bonds may be exempt from federal income tax if you use the funds to pay tuition and fees at a college, university, or qualified technical school.
Savings methods
1. Savings accounts: simplest way to earn interest on small sums.
a. Interest rate calculation - simple and compound.
b. Fees, charges and penalties.
c. Balalnce requirement.
2. Money market deposit accounts
3. Certificate of Deposits - CD's
4. Saving versus investing.
a. Degree of risk
b. Rate and stability of return
c. Availability of funds to use.
d. The rule of 72 (a way to estimate how money grows. Divide 72 by the interest rate to calculate the number of years it will take for your money to double.)
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