Bank Savings Accounts
Mattress manufacturers had to hate the day bank savings accounts were first formulated. But of course that would have been back when they were made from burlap and hay, or maybe just the innerspring hay model. But money has been hidden from thieves in a number of quite ingenious ways in recent times, but sadly perhaps more from spouses than thieves. A toilet paper roll, the clothes hamper, a fake plant, inside a picture frame, inside old sneakers under the inside sole and many other ingenious places are all used for clandestine deposits for money, but alas, they don't pay interest. Bank savings accounts are a necessity for most people who have at least a modicum of extra money they don't want to hide in an aquarium full of piranha.
Maybe the most important aspect of a nest egg account at a bank is safety. Despite the fact that one's money is in a toilet paper holder and safe from thieves' eyes, if the house burns down its gone forever. And for some people, the greater danger than the house burning down is the fire that extra money creates in one's pocket. Money just lying around can be a great temptation to burn. Putting it in bank savings accounts is the smartest way to avoid both the house and the pants from burning up one's stash. And if the money is placed in a financial institution it is protected by the Federal Deposit and Insurance Corporation or FDIC. Amounts up to one hundred thousand dollars are secure under this umbrella of protection.
Bank savings accounts, among other money making efforts that financial institutions employ, are a chief source of their lending supply of money. When people receive loans from their bank, in most cases they are receiving money taken from the nest egg account of other customers. Those customers are paid an interest rate that is competitive with other lending institutions in the area and then lends that same money out at a higher rate to make a profit. In most cases, the interest is compounded daily, and while not head spinning, putting money in a nest egg early in one's life and not touching it for decades is a real eye opening consideration. Consider the grandparents who gave each of their grandchildren a gift of five thousand dollars on the day of their birth in the form of a savings account making five percent compounded daily. They were not allowed to draw from the accounts until their 21st birthday when each of them would have over fourteen thousand dollars.
In typical fashion, as stock prices plummet, interest rates rise and conversely fall when stock values rise. Taking advantage of such swings in the market place by moving money in and out of bank savings accounts can be an excellent way of investing in a rather secure manner, particularly if the stocks are of lower speculative pedigree. But one must be careful to pick the right type of nest egg holding plan to take advantage of being able to quickly move money around. One would always want to choose a depositor of savings to be fully equipped with all the latest security devices, but Jesus said that something else about saving money was so much more important. "Lay not up for yourselves treasure upon earth where moth and rust doth corrupt and where thieves break through and steal but lay up for yourselves treasure in heaven, where neither moth nor rust doth corrupt and where thieves do not break through nor steal for where your treasure is, there will your heart be also." (Matthew 6: 19-21)
Choose wisely from the many options a person has among the several bank savings accounts available. The first are the run of the mill, nondescript accounts that offer a straightforward short term investment opportunity. The short term caveat might change if interest would climb above ten percent or more during high inflation times. The money market nest egg plan, paying higher rates than the run of the mill type, requires minimum deposits and only allows a certain number of withdrawals a month, oftentimes under the guise of checks written to cover expenses. Money in these types of bank plans is covered by the FDIC up to one hundred thousand dollars. Experts suggest that consumers with more money than that should begin a strategy of using more than one bank in order to have all insured. Then there is the Certificate of Deposit, or CD which are bank savings accounts that are firmly in the financial institutions possession for a certain length of time, usually six months to five years.
Finally there are hybrids of savings accounts that are called money market funds. These are purchased from mutual fund brokers are based on short term bonds, which pose a much degree of risk than long term bonds. These are based on US securities such as government investments, and commercial paper. They are not FDIC insured, but do offer higher rates of interest than bank savings accounts. The recent disclosure that Americans carry as much as two trillion dollars in personal debt has given rise to the government's "Feed the Pig" ad campaign espousing the need for hard core saving on the part of its citizens. Teaching children very early about the power of compound interest and the need to have a regular plan of saving money is crucial in turning this big debt ship around.
Bank Savings Interest RateIn the U.S., the bank savings interest rate is the amount of interest banks pay depositors in exchange for lending them money. The rate fluctuates with the federal funds rate which the Federal Reserve Banking System, or the Fed, establishes for member institutions. The federal funds rate is the interest member institutions charge one another for 24-hour loans to correct federal funds deficiencies. The Federal Reserve requires banks to keep a certain amount of cash reserves on account at the Fed as insurance against panic runs. Banks routinely borrow reserve funds from each other at the end of the day to make up deficits caused by withdrawals and other transactions. The federal funds rate determines the bank savings interest rate financial institutions can afford to pay depositors. Lower federal funds rates translate into lower expenses for member banks. The less interest on borrowed funds member institutions have to pay one another, the more they can make available to pay depositors.
The money market is essentially a system of financial activity transacted in a global economy. Money literally makes the world go around; and financing the world's goods and services determines the rate at which domestic and foreign banks can borrow or lend funds. A bank money market rate, determined daily by fluctuating interest imposed between financial institutions globally, is the amount of interest banks pay depositors on funds deposited into a bank money market account. Banks, credit unions, and other financial institutions which issue money market accounts (MMAs) use depositor funds to invest and diversify portfolio holdings at home and abroad. Simply put, when banks make money from investments, depositors earn more interest. The bank money market rate goes up or down depending on earnings from investments.
Depositors seeking to earn a higher bank savings interest rate would do well to consider opening a bank money market account. Not to be confused with a money market mutual fund, which collectively invests shareholder funds to gain added returns; an MMA pays interest on depositor funds double the earnings of a regular passbook savings account, from 2% to an average of 4%. At an average of one percent, regular passbooks just can't compete with the high yield bank money market rate. But the advantage to passbook savings is the high liquidity of funds. Depositors can withdraw money on demand without paying penalties, there are no maturity dates, and usually no minimum balances are required. A regular passbook with low bank interest savings rate can also be linked to an existing checking account to afford overdraft protection. For depositors who require quick, fast, and in a hurry access to ready cash, low- or no-earning savings make plenty of sense. But for those savers who want to ensure funds are available, not just for easy access, but for future financial security, other options exist.
Although low-interest savings accounts are still essentially wise and prudent choices, deposits don't work nearly as hard as those invested in a bank money market account. But earning nearly double the interest also doubles the risk. Deposited funds, while FDIC-insured, are tied to the global stock market and can fluctuate on a daily basis. In the case of a catastrophic financial event or panic, the Federal Deposit Insurance Corporation promises to replace depositor funds up to $100,000. As a hedge against potential financial loss, many wise MMA holders diversify portfolio holdings by combining the high yield MMA with long-term savings vehicles: Certificates of Deposit (CDs), Individual Retirement Accounts (IRAs), Roth IRAs, and employer supported 401ks. Diversification is always a wise choice for those who don't want to put all their nest eggs into one proverbial financial basket. Of course, the only true security against catastrophes of any sort is having one's confidence firmly placed in God. "Though an host should encamp against me, my heart shall not fear: though war should rise against me, in this will I be confident For in the time of trouble He shall hide me in His pavilion: in the secret of His tabernacle shall He hide me; He shall set me up upon a rock." (Psalms 27:3,5)
A high-yield bank savings interest rate, coupled with FDIC backing, makes MMAs solid investments, even in the face of a sagging economy and increasing unemployment woes. MMAs are also highly liquid and the potential added earnings can give depositors a good return on relatively minimal initial deposits. In addition to higher earnings, bank MMAs also offer check writing privileges and debit cards, which make cash as readily accessible as a low-interest passbook savings. Because financial institutions invest depositor funds, restrictions on withdrawals may be imposed and higher balances may be required. High yield bank money market accounts can be opened and managed online, 24 hours a day and seven days a week.
To find higher savings yields, depositors can go online to financial analysis websites, log onto banking institution and credit union sites, or make a personal visit to local branches. Rates are reported daily, weekly and monthly; and depositors can easily make comparisons before determining which bank savings interest rate suits particular financial needs. As the bank money market rate continues to increase, depositors may find regular passbook savings accounts a thing of the past. Savers will cease to be content to deposit funds, only to have them earn the least amount of interest. No one can afford not to have hard earned cash work as hard for them as they do for it.