The markets had a fourth consecutive week of gains after three pieces of positive news. The Consumer Price Index and Producers Price Index both declined, showing that inflation, while still high, is slowly dropping. Three large US banks reported earnings on Friday and all exceeded estimates, easing fears of stress in the banking sector.
We’ve been asked about banks, and savings accounts, and other places to keep emergency funds quite a bit lately. We discussed FDIC limits a few weeks ago, and why we don’t expect to see a contagion of bank failures. If you want to earn a bit more than in your the savings account, you have a few options.
First, you can purchase CDs, or Certificates of Deposit. Your bank offers these in varying lengths. They are willing to pay a bit more interest than in a savings account because consumers are offering to keep the money in the bank for a set period of time. The longer the time period, the higher the interest. You don’t actually have to leave your money there the entire length of the CD. If you take it out early, your principal, or the amount you deposited, is always yours. The bank will recalculate the interest based on how long you actually left the money there.
Another option is a high-yield savings account. These savings accounts usually have a minimum account size, and often limit the number of transactions you can make in a month. Again, this gives the bank a bit more certainty that you’re leaving the money in the account, so they are willing to pay a bit more interest.
Finally, you can use a money market. Depending on where you purchase it, a money market may or may not be FDIC insured. If you’re doing it through a bank, it usually is, but you might want to confirm this when you open the account. A money market is an investment vehicle where each share is equal to one dollar. If you earn interest, the value of the shares doesn’t go up, you just get more shares. Like a high-yield savings account, there are often account minimums and limits on the number and size of transactions.
You can find comparisons of interest rates on these options at websites like bankrate.com. If you want to invest according to your personal values, you might want to try mightdeposits.com, which allows you to choose banks based not on the interest paid but on the values the bank holds, such a supporting underserved communities or not investing in fossil fuels. We also have numerous local banks that often have great rates right here in Anne Arundel County.
Your action item this week is to review your banking relationship. Are you paying fees or being charged penalties for your accounts? Are you earning a good rate of return on your savings? Are there ATM fees? Take some time to evaluate your bank this week, and research options.
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Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor.
All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investment(s) may be appropriate for you, contact the appropriate qualified professional prior to making a decision.
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