10 ideal landing spots for personal cash 6
Is a short-term savings account usually the best choice, or can you earn more than that amount of interest?
Usage: How often do you use your account?
Interest rate: What is the maximum interest rate your depository institution will pay?
Service: Are you high on customer service quality or are you a low service person?
Penalty: In case the plan changes and you need the money sooner than expected, what will be the penalty?
1. Checking account
Checking accounts are used for payments, not for savings.
Advantage:
– The money you carry is just a check or simply a mobile ATM
– Bank branches are usually not too far away, maybe right next to the grocery store you often go to.
– Checks are also guaranteed by the Federal Insurance Corporation (FDIC) like other types of bank accounts.
Defect:
– Depending on the bank, you may not earn any interest on the money in your checking account
– Some checking accounts require a minimum balance or expenses, or both.
2. Short-term savings account
Using a savings account or book is a traditional method for short-term savings.
Advantage:
– Savings accounts are guaranteed by FDIC.
– Account balance may be low.
Defect:
– Interest rates are usually low.
3. High-performance savings account
This type of account is quite flexible when you are looking for a ‘stop’ for your monthly bills.
Advantage:
– Enjoy higher interest rates than some regular bank accounts.
– Benefits guaranteed by FDIC.
Defect:
– The bank does not support withdrawing money via ATM or signing checks, which is a huge disadvantage if you need money immediately.
– Customers must handle their cash flow by transferring money from online banking to checking or savings accounts, so there will be a delay of 2 to 5 days.
4. Market savings account
Market savings accounts are issued by banks.
Advantage:
– Market savings account with high liquidity.
– Market savings accounts are issued by banks, so they are also insured by the FDIC.
Defect:
– The price to pay for high liquidity is low interest received.
– If your account balance falls below the minimum or exceeds the transaction limit, you may be fined.
5. Money market fund
Money market funds are introduced by brokers or large family funds.
Advantage:
– With a money market fund, you can withdraw money quickly via check or using an ATM card.
– Interest is higher than market savings accounts.
– The issuer always strives to keep NAV (price per fund certificate) at 1 USD, so your investment can be considered safe.
Defect:
– Money market funds are not guaranteed by the FDIC.
– It cannot be confirmed that the fund’s NAV is always at 1 USD.
6. Certificates of Deposit (CDs)
CDs are debt instruments with specific maturity dates that can be traded anywhere from 3 months to 5 years.
Advantage:
– CDs are very safe because most of them are issued by banks and insured by the FDIC.
Because of their maturity, CDs can provide more income than money market funds.
Defect:
– Your investment money is completely locked until the CDs mature.
7. US government bonds
Bonds are backed by confidence in the government and the national budget.
Advantage:
– Government bonds are considered the safest investment tool in the world.
– You can buy directly.
– Can buy directly, no commission.
– Income from this type of bond is more tax-favored.
Defect:
– The amount received is less than with money market funds, CDs and corporate bonds.
– If you need money before the bond matures, the amount received will be lower than the initial investment.
8. ‘Floating’ bond (I Bond)
`Floating` bonds are issued by the US government.
Advantage:
– ‘Floating’ bonds are guaranteed by the US government based on the national budget.
– ‘Floating’ is a factor that helps your investment process avoid inflation risks.
– Sold in easy-to-manage denominations, from 50 USD to 10,000 USD.
– You can buy this type of bond at most financial institutions.
– Income receives many tax incentives, even completely exempted if this bond is issued for education.
– Tax incentive period can be up to 30 years,
Defect:
– You must hold the ‘floating’ bond for at least 12 months.
9. Local bonds
Local bonds are often issued by state governments or residential areas to mobilize resources to build public works such as schools, railways, etc.
Advantage:
– Local bonds are only slightly lower than government bonds in terms of safety.
– Income enjoys tax incentives.
Defect:
– Interest rates from local bonds are often low.
– Commissions may be required to purchase municipal bonds.
– If you need money before the bond matures, you may not be able to recoup the entire initial investment.
10. Corporate bonds
Corporate bonds are a form of debt between businesses and investors, classified from `blue chips` to `cow chips`.
Advantage:
– Corporate bonds typically provide higher income than government bonds, money market funds, and CDs.
Defect:
– The company issuing the bond may fail to pay interest or go bankrupt.
– You have to pay a commission when buying corporate bonds.
– If you need money before the bond matures, the amount recovered may be less than the initial investment.
