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Saving And Investment Options At The Bank
Your bank can do more for you than simply hold your money and issue checks. Many banks, especially larger national banks, also offer investment and savings options for customers. Here are some of the more common ones: Bonds: A bond is a debt security certificate. In simple terms, when you buy a bond you are lending money to some enterprise. That might be a corporation or it might be the US itself. In exchange for lending the money, you get a specific interest rate which is paid to you either at maturity of the bond or at intervals during the life of the bond.
The principal is paid back to you at maturity. The Certificate of Deposit (CD) is perhaps one of the most well known investment options sold at banks. They are a unique type of deposit account with special requirements. They pay a higher rate of interest than a regular savings account which is why people use them as investment options. In general, you put in a specific amount of your money into the account and you receive a fixed amount of interest in return.
An important distinction with CD's is that they are covered by the FDIC up to $100,000. Brokered CD's are another form of CD's. These are sold through brokerage firms and they will often have a higher interest rate than those issued by banks. These may be callable, which makes them a riskier investment. Although brokered CD's are sold through brokerages, they are issued by banks. You should check to see if they are insured by the FDIC. Interest bearing checking account is another way to make some money through your bank. These accounts are just like regular checking accounts but they usually require a minimum deposit as well as a certain minimum amount to be kept in the account in order to draw the interest. These are sometimes called NOW accounts. NOW stands for Negotiable Order of Withdrawal.
Many banks offer a Christmas club feature that is helpful for setting aside money for holidays. The details of these vary from bank to bank and some will assess penalties if the money is taken out early. You have probably heard of money market funds. These are mutual funds that are invested in high-quality, short-term corporate and government debt securities. These accounts will usually earn a variable interest rate that is often similar to the interest earned on CD's. With money market funds, you can withdraw money at any time without penalty. Keep in mind, however, that the FDIC does not insure your principal or the earnings in a money market fund. A money market account offers consumers higher interest rates than a standard savings account, but they almost always require a minimum balance, and there are limits to the number of checks that can be written per month. Most carry a monthly service fee if the minimum balance is not kept. The FDIC does insure these accounts.
An interest-bearing savings account is another easy way for consumers to earn interest from the bank. Details on these vary from bank to bank so it is a good idea to shop around for the best rates. Some banks offer premium savings accounts. These accounts usually have tiered interest rates that are tied to higher balances. The more money you keep in the account, the higher the interest rate you receive. See your bank for more ideas on how to save and invest with them.
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