Creating a savings plan is a great way to invest in your future and reach your financial goals. However, you should know that not all savings options are the same and what might be right for one person, may not be right for the next. It is important that you understand these differences in order to find the right place to save your money.
The first thing you need to do before you start looking at your options is to ask yourself some questions. How long do you plan to keep your money in this savings account? Do you anticipate that you may need to withdraw any funds early? What amount do you have right now to put towards your savings? What are the tax implications of different accounts? The answer to these questions will help you when it comes time to pick the right option for you.
Various Savings Accounts
Most financial institutions offer a variety of savings accounts to meet the different needs of their customers. These options all provide different returns and levels of risk. Here is a look at the most common types of accounts.
- Standard Savings Account. A standard savings account is by far the most common account offered at the banks. These accounts usually do not require a minimum balance to maintain, which is one of the reasons they are so popular. You also are usually able to make withdrawals from this type of account with no penalties or added fees. The interest rates, however, are lower than the other types of accounts available. Consider this a transactional account for everyday living.
- High Interest Savings Account. A high-interest savings account will offer you better interest rates, but will come with more requirements. Typically, you will be required to maintain a minimum balance in this account at all time, or risk be charged a set fee. You may also be restricted as to how many times you can withdraw money without being charged a fee.
- Online Savings Account. Online savings accounts are becoming more popular. They are able to offer better interest rates because they provide all of their services online. The disadvantage is that you will not have a banking facilities that you can go to for assistance and all your transaction must be done online.
- Credit Union Account. Credit unions are also able to offer better interest rates on savings accounts than some other banks. This is because they credit union is own by its customers and it reinvests its profits each year back into the bank.
- Money Market Account. You will need to have a set amount of funds available before you can invest your savings into a money market account. These accounts usually have higher interest rates than standard savings accounts, but since the account is tied to the prime interest rate and other market indicators, it is hard to predict how much interest you can earn.
Term deposits are an additional way you can invest your savings. Like savings accounts, term deposits are guaranteed by the Australian Government Deposit Guarantee up to $250,000. This means that even if the financial institution handling your term deposit goes bankrupt, you will still get your money. Typically, a large sum of money is needed in order to invest in a term deposit. However, if you have the funds available, it can be a great way to earn high interest in a short period of time.
Term deposits are set up for a set number of years, which usually spans from one to five years. It also has a set interest rate. This means that from the beginning, you know exactly how much interest you will receive at the end of the term. If the interest rates for savings account are low or declining, a term deposit is a great choice. However, if the interest rates are increasing, it is possible that you could have earned more interest just keeping your money in a high-interest savings account.
It is best to seek the advice of a financial counsellor, who can help explain your options to your. He/she can look at your specific set of circumstance and your financial goals, and help you determine the best option for you.
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