By Mindi Schools
What are you doing with the money you set aside for a short-term savings goal? Perhaps you earmarked some for an upcoming vacation, new vehicle or living room furniture. Whatever your savings goal, it’s important to pick the proper parking spot for your cash.
Short-term savings should be separate and distinct from funds destined for other, long-term purposes, like retirement. They should also be liquid. But beyond a few hundred dollars in bills, it’s often not smart to build up a cash hoard at home.
So where do you park your cash? Early withdrawal fees and the potential for changes in value typically make most bonds and mutual funds better choices for medium- and long-term savings. But in between the underside of your mattress and the stock market is a range of savings options.
Checking or Standard Savings
Checking or standard savings accounts may not be the most exciting financial products out there, but these accounts can be a good place to start, especially if ease of access and the safety of your deposits are important to you.
Checking accounts provide convenient access to your funds, such as online and mobile banking, ATMs, and the use of debit cards and checks to make purchases or withdraw funds. Monthly maintenance fees generally apply, but many financial institutions will waive the fees when you meet certain requirements, such as a maintaining a set daily balance or having direct deposit.
One of the most useful benefits of a savings account is the ability to keep your money out of your checking and away from the temptation to spend it. However, it’s still quickly accessible via online and mobile banking and at ATMs in the event of an emergency.
You can also rest assured that the money you keep in a savings account is secure, because the Federal Deposit Insurance Corporation (FDIC) guarantees your deposits up to $250,000.
There are generally minimal or no fees for withdrawals from savings, but be sure to check the transaction limits. Due to federal regulations, most savings accounts allow no more than six withdrawals of a certain type per month.
Money Market Accounts
Most financial institutions also offer money market accounts with many of the same characteristics of a traditional savings account, but with generally higher returns and limited check writing capabilities.
Sometimes called MMAs, money market accounts typically require a large initial deposit to open and a higher minimum balance than a basic savings account. In return, they tend to offer higher interest rates than most savings accounts. Often, the larger your account balance, the higher the interest rate you earn.
If you want a higher return, consider a certificate of deposit, or CD.
With CDs, you typically pay a sizeable penalty if you pull the cash out before the agreed-upon maturity date. In exchange for locking away your cash, your interest rate is going to be better than a traditional savings account.
By setting up multiple CDs with staggered maturity dates, you can enjoy periodic access to funds while taking advantage of the interest rates associated with longer term lengths.
No matter what type of savings account you choose, a short-term savings strategy is an important part of any good financial plan. Short-term accounts aren’t going to make anyone rich—they’re not designed to make money (or lose money) with the whims of the stock market. They’re designed to ensure your money is safe and there when you need it.
If you need assistance or advice in determining what steps you should take with your short-term savings, remember there are many financial experts available to assist you. Be sure to turn to a professional that is experienced, local and can understand your savings needs.
Mindi Schools is the Branch Manager of M&T Bank’s Old Towne Branch located at 833 S. Washington Street, Alexandria, VA.
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