Comparing Savings Options For Young To Middle Aged Persons

There are many reasons to save money and it is never too soon to start. Long ago savings accounts were the obvious choice, however the interest rates on savings accounts are very low and many want a better option. Money market accounts, CDs, mutual funds, and stocks are all options young to middle people may want to consider, no matter what they are saving for, and a money market has advantages and disadvantages.

A money market account works a lot like a savings account, only the interest rate is higher, meaning account balances will grow much faster than they do in very low interest savings accounts. A money market combines municipal funds in order to allow this faster growth. For most people, the liquidity offered in a money market is sufficient for their savings needs. Typical minimum balances are around $1,000, but they may be higher or lower depending on the policy of the financial institution hosting the account. There are also restrictions of the number of withdrawals, usually three to six, which is normally plenty to allow for withdrawals for emergencies or purchases.

Most money market accounts are also insured. Bank accounts are insured by the FDIC, and credit union accounts are insured by the National Credit Union Authority. Even money markets that are not bank sponsored and insured are considered a safe bet for savers, and these normally earn a little more interest to offset the risk.

CDs are another option that many young and middle-aged persons consider for saving and investing. With CDs, it is much harder to get at the money than when it is invested in a money market, but interest rates can be higher, especially when one chooses longer-term CDs. However, if interest rates increase during the life of the investments, the investor may be locked into the lower rate. It is also harder to get at the money without facing penalties if the money is needed before the CD matures.

Mutual funds and stocks are also options that many people consider when saving or investing, but these options are much more volatile than other savings options, with stocks being the most risky. Stocks are tied to a specific business and increase in value as the company makes money. Many factors must be considered to predict a company’s future success, and every company can be vulnerable to market conditions. Mutual funds are made up of smaller shares of stocks bundled together by financial experts, and are usually considered safer than individual stocks.

Ultimately whatever saving option is chosen, a person needs to consider what they are saving for, how accessible their money should be, and what they can afford to lose.

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