Account Interest Rates
|
Understanding the various types of account interest rates available to Christian investors can get a little confusing, but a post-graduate degree in economics isn't required to make sound financial decisions. However, a short primer course in how the money interest system works is helpful. But, when in doubt about any investment, consult a good advisor. Basically, there are three types of interest earning accounts. First, there are the Federal Deposit Insurance Corporation-insured savings or money market accounts. Then, there are FDIC-Insured checking accounts. Finally, there are money market funds and other accounts which often have check-writing privileges but are not insured by the FDIC. A variety of money market accounts are available to investors. In fact, they are too numerous to list in a short article. The amount of money required to open a money market account varies. It can be less than $100 or more than $5,000. Account interest rates for the three types of accounts were about the same. Annual percentage yield (APY) for 2008 ranged from as low as 0.50 percent to 4.00 percent. The FDIC is an independent agency of the United States Government and protects against the loss of deposits if an FDIC-insured bank or savings association fails.
Investors, brokers, advisors, and other financial planners use the APY as a tool to evaluate how much a deposit earns. APY is a standardized way of comparing investments. And yield is a term to describe the earnings on a deposit over the course of a year. When comparing account interest rates for the best yield, always check to see if compounding is used in determining yield. Compounding means that earnings are earned on account earnings. And, the APY is generally greater with more frequent compounding periods. Therefore, daily compounding is better than quarterly compounding. Calculating an investment's APY can be complicated and tricky, so consult a banker or investment advisor for an explanation of APY formulas and methods. When searching for and reviewing account interest rates in an effort to determine which are best and worthy of investing in, try to keep in mind a goal. Also try to keep money markets in perspective. For help with this read the book of Matthew and the Parable of the Talents. Two of the three servants invested their master's money wisely and gained returns. As a result they also gained the trust, admiration, and additional responsibilities from their master. But the third servant buried his money and gained nothing. He was rebuked and cast out into the darkness. So, wise investments will be returned. Lazy and thoughtless decisions can be detrimental. "His lord answered and said unto him, Thou wicked and slothful servant, thou knewest that I reap where I sowed not, and gather where I have not strawed: Thou oughtest therefore to have put my money to the exchangers, and then at my coming I should have received my own with usury." (Matthew 25:26-27) Each person has been given a gift or talent and is charged with investing it wisely in service to the Lord so as to bring the best return.
Typical bank checking and passbook saving account interest rates are fairly common and easier to understand. They are safer than some other types of accounts but they usually draw lower rates, also. However, money market accounts and money market funds require more explanation. A money-market account, or MMA, is an interest-earning savings account offered by a FDIC-insured financial institution with limited transaction privileges. Money market accounts are offered by banks and credit unions and savings and loan associations that give competitive rates on minimum deposits. These types of accounts are more formally known as money market deposits and the account interest rates vary. But MMA are usually limited to a specific number of transfers or withdrawals per month. Also, regulations applied to these types of accounts restrict the number of check transactions written against the account.
Unlike an MMA, a money market mutual fund, or money fund, will carry no FDIC insurance and is really a collection of short-term debt investments held by the mutual fund. Although account interest rates and maturity periods for different money market investments vary, these types of accounts usually mature in 13 months or less. Sometimes, money market investments are referred to as cash investments because of their short maturity periods. A mutual fund is a professionally managed, and registered, trust company that pools investor's money for investing in securities, stocks, and bonds. On the other hand, money market funds are mutual funds that are invested in short term instruments such as treasury bills, high yielding securities, and negotiable certificates of deposit, usually with maturity dates of 60 days or less. Map out a plan and set goals. Then research each type of account thoroughly and understand the strengths and risks of each. If after the initial research questions persist, consult a qualified advisor before making any investment.
While shopping around for the best account interest rates, try learning as much as possible about the Federal Deposit Insurance Corporation and how it works. This is a prudent part of the investment process that can possibly prevent heartache later on down the road. The FDIC was created in 1933. Most people who have ever walked into a bank or credit union have probably seen a little placard or window sign indicating that their deposits are insured in the event the bank collapses. Being FDIC insured is an indication that federal and state regulatory agencies have reviewed the financial institution and evaluated its fiscal strength and stability. If the bank meets the required standards, the FDIC then insures most accounts at the institution: checking, savings, money market, and certificates of deposit. There is a limit of $250,000 per depositor. Money invested in stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities are not insured even if they are purchased from an insured financial institution.
|
|
|
|
