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Home >> Manage Your Money >> Personal Finance
Build Your Savings, Increase Your Interest
What is a strategy for saving a few dollars a month, and getting the most out of that as my balance grows?
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 A new savings account often has a minimal amout of money deposited to it. As you faithfully paid into your savings account each month your deposits grew. Initially you needed an account that required a minimum deposit to avoid bank fees, but as your deposit grows, you deserve to get more. Other accounts should be available that require a higher minimum deposit, but also pay a higher interest rate. For comparison purposes you want to look at the Annual Percentage Yield (APY) that is disclosed for each interest bearing account according to a standard formula under the Truth in Savings Act and banking Regulation DD.
Consider moving up to a Negotiable Order of Withdrawal (NOW) account which is like a checking account that earns interest. This account will give you easy access to your money if it is needed. If you don't anticipat a need for this money, consider moving it instead to a higher yielding Money Market Deposit Account (MMDA) or a Certificate of Deposit (CD). An MMDA provides easy access to your money but transactions are limited to a few each month when you pay others. If you only go to the bank to make withdrawals, this account can earn you more, but be sure to ask about transaction fees. A CD is a longer term savings account that traditionally pays the most interest. If you deposit $1,000 into a 6-month CD, you will earn less than if you deposited it into a one-year CD. If you withdraw the money before the CD matures, you will be subject to a penalty. If you don't anticipate needing the money, a CD is a wise investment. These are insured deposits under the Federal Deposit Insurance Corporation. If you are willing to take higher risks for higher gains, you may want to investigate mutual funds, stocks or bonds as investments.
Published on BankingQuestions.com 7/28/06
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