Jun 11

Today, a Guest Post by Kristy Ramirez -

life savings penny jar

With the global financial crisis that our world is experiencing – beginning in 2008, and countries like Greece, Italy, the U.S. who are witnessing the collapse of their economic system, it’s no wonder we worry about where to put our hard earned cash. 

What is safe anymore?  

When we think about the crisis that put these countries in dire situations with unemployment skyrocketing, housing prices driven down to depression era values and more homeless people than ever before, not to mention the stock market crashes and losses of over 2 trillion dollars of retirement savings for so many, it’s unnerving to most people who want put something away for retirement, or a rainy day.

For Americans, the loss was catastrophic, with 401(k) plans dwindling, and an overall decline near 20 percent. So many people lost their live savings and nobody did anything for them. They have nothing to fall back on, and this event has been considered by the “WashingtonPost to be one of the greatest casualties of the current financial crisis. 

Bankers are now looked upon as ‘the bad guys’, mostly because they are being blamed for all of this crisis due to their greed; selling off mortgages, taking bail-outs for their horrific and greedy choices, yet not reaching out to help their customers, but instead foreclosing and selling individual mortgages off to the highest bidder.

But – believe it or not, there are still some good banks out there, and fortunately they offer a safe refuge in which to save money, and earn a little too.  Remember, in the U.S. at least, your money is federally insured.  It wouldn’t be wise to put all of your money into one place; however, if you stay within the insured limits, spread out between different types of accounts, you are safe.

Here are some safe havens for your retirement, and/or savings:

Checking accounts:

Banks and credit unions offer interest-bearing checking accounts, and the best part is they are safe.  The accounts are insured for up to $250,000, so if the bank were to crash and burn, you’d get what you had in there, back. 

Of course the interest rates are not even worth mentioning, however, it would be wise to put a little aside here, just in case.  You have full access to your money at all times.

Learning to SaveSavings accounts:

These accounts are safe as well, as they are insured for up to 250,000.  Different banks offer different rates, and they are usually dependent on how much you actually have in there, however, you won’t lose everything should the bank fail.

Again, you have full access to your money should you need access.

Certificates of deposit:

These are also known as Term Deposit accounts, or TD’s and also CD’s. These are federally insured deposit accounts that you purchase in time increments. The maturity dates can range, depending on your choices, from weeks to years. And, of course the longer you invest, as well as the more you invest, the better the interest rate. These are safe and are offered by banks, brokerage firms and credit unions.

CD’s and TD’s offer interest income, with low risk, but cashing out can be costly if you do so prior to the maturity date.  So if you put cash here, make sure you won’t need access to it prior to its maturity.

The most prominent disappointment with these accounts is that the interest rate you purchase your CD/TD at is where it stays.  If you buy a 5-year CD – and the interest rates rise, you’re out of luck.   Consider this when looking into Time or Certificate deposit accounts.  Experts suggest buying 2 or three, and having them expire within a month of each other to avoid missing out on interest increases.

Money Market accounts:

A Money Market account is a form of a deposit account that pays you interests, and the rate, dependent on how much you put into it.  They earn higher interest than a typical savings account, but have different requirements, such as higher minimum balances and restrictions on withdrawals. 

These are very low risk, and are also federally insured, so you can’t lose your principal. Make certain that you stay within the insured levels that are at this point in time, $250,000, or you could lose your investment.  Be sure you check with your credit union or bank to verify the exact insured amount because it is generally $100,000.

The benefit of a Money Market account is that you are allowed to write checks (most are 3 per month) should you require cash, without penalty as long as you don’t dip below your minimum balance. 

Money Market funds:

savings bondsThese are quite different than Money Market accounts, because they are short-term investments that mature in a year or less.  The interest rates vary depending on risk, but generally they are safe because a low risk fund usually invests in Treasury securities, CD’s, federal agency notes and municipal securities, which are fairly stable.  Some even include government bonds, which have a history of being safe and stable. 

Money market funds are a bit riskier than a standard savings or Money Market accounts because they are securities, and are not insured, however they have been deemed safe as long as you stay away from the more risky funds.

The benefit of these funds is that you can write checks, and can sell or buy at any time. Plus you get your money (interest earned) in monthly dividend checks and the interest rates are much better than a standard savings or checking account. 

A very wise (and successful) investor once recommended that putting your ‘eggs’ in one basket spells trouble.  So don’t be afraid to spread out your savings to include many different accounts, and if you have a little to spare, try investing in more risky accounts such as higher risk mutual funds that bring high yields, to get to your goals quicker.

Remember though; don’t risk more than you can afford to lose.

Kristy Ramirez is a frugal mom and writer. In her time away from work she manages the family finances and is living debt free.

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