• Traditional – An account that keeps your funds “liquid” – that is, instantly available for withdrawal
  • Typically, traditional accounts provide the lowest interest rates of any savings account because of your ability to have instant access to the funds
• Money Market Account (MMA)
  • The interest rate varies depending on the current market rate
  • Limited check-writing capability
• Certificates of Deposit (CD)
  • Deposit that earns a fixed amount of interest over a specified “term” or period of time. Funds must stay in the CD for the full term; early withdrawal may incur a fee.
  • Generally higher interest rates are paid for longer terms
• IRA (Individual Retirement Account) – A retirement savings account that provides specific tax advantages

Smart Principles for Saving

• Start any savings process with a goal in mind
• Pay yourself first
  • Set up direct deposit to your savings account
  • Consider automatically transferring 10% of your income directly to your savings. If you don’t see it, you won’t miss it.
• Spend less than you earn
• Avoid debt! Whenever possible, save for purchases rather than going into debt to buy them.
• Recognize the difference between needs and wants when making purchases
• Avoid late fees and other penalties by paying bills on time
• Save or invest bonuses and tax returns instead of spending them
• Participate in employer-matching savings plans.
  • If your employer offers a retirement plan that matches the money you contribute, participate! Don’t miss out on “free” money.
• Create an emergency fund. You should have 3-8 months of liquid (cash) savings.
• Avoid interest fees by paying off credit cards in full each month.
  • It will take a very long time to repay the debt by only paying the minimum each month, because the minimum only covers a very small portion of your principal debt.
• Save money in interest-bearing savings accounts to take advantage of compound interest.
  • Compound interest is interest earned on a principal amount of money, which is then added to the principal on a regular basis (such as monthly or annually). Interest continues to be earned on the entire amount (the principal and the interest earned for the previous period).
  • Example: If you deposit $100 to a savings account that pays 6% interest and is compounded on an annual basis, it will be worth $106 at the end of the year ($100 x .06 = $106). The $106 then becomes the principal amount upon which 6% interest is earned for the next period, becoming $112.36 at the end of the second year ($106 x .06 = $112.36).
  • The more frequent the compounding, the better.