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Cash in the bank

A savings account is a savings account, right? Wrong. Savings accounts, CDCertificate of Deposits, and other cash investments can be great choices for meeting more immediate goals, since your money is safe and easily accessible. But they can vary widely in interest Opens a new window rates, fees, service charges, and potential penalties. So it's smart to shop around for an account that not only keeps your money secure - but also helps it grow.

Take interest in your interest

It's no secret that the higher the interest rate, the more the account earns. But interest can be calculated in two ways - simple or compound. An account paying simple interest means you'll only earn interest on the principal, or the amount you put into the account. But an account paying compound interest will pay interest on your interest, too - helping your account grow faster. Another thing to look for is whether you're charged any fees or commissions for opening an account or keeping it open, since that could take a big bite out of your earnings.

From no minimum balance fees to 24-hour online access, you can compare savings accounts to find the one that's best for you with the following shopping list:

Printable version of the following Savings Account Shopping List (31KB PDF) Opens a new window

Skip the savings account shopping list table

Savings Account Shopping List

  • Is the account FDICFederal Deposit Insurance Corporation insured?
  • Is the account's Annual Percentage Yield competitive?
  • Do you have 24-hour online access to your account?
  • Is it convenient to transfer money between savings and your other bank accounts?
  • Is there a minimum balance or purchase required to get and keep the best rates?
  • Are there fees to open the account or transfer money?

Terms and rates are illustrative, and may differ based on the Bank or Investment Company you do business with.

Climbing to your goals

Laddering, or staggering the maturity dates, of CDs gives you greater flexibility than investing your entire principal in a single CD. Let's say you have $7,500 to invest, and you are looking for a CD with a three-year term to take advantage of the higher rates that are usually paid on longer-term CDs. To ladder, you divide your principal into three parts, worth $2,500 each, and buy a one-year CD, a two-year CD, and a three-year CD. When the one-year CD matures, you reinvest in a three-year CD. You do the same when the two-year CD matures, and again when the original three-year CD matures. At that point, you'll have three CDs, each with a three-year term, but with one maturing each year.

Interest rates are subject to change, but by laddering CDs, you're able to even out the highs and lows that invariably come with interest rate cycles.

Sharing the wealth

You can enjoy the best that CDs and savings accounts can provide if your bank offers interest disbursement. It means you can have the interest you're earning on your CDs automatically transferred to your savings or checking account every month - or once a year, if you prefer. This choice gives you access to your earnings without dipping into your principal or facing penalties for early withdrawal, and is a good option if you need the money for some living expenses. And you'll still have the full amount of your principal to reinvest in your ladder when the CD matures.

If you don't choose interest disbursement, the interest is credited directly to your CD, so your principal is even larger when you reinvest it in a new CD.

The good, the bad, and the unexpected

Life is full of the unexpected. That's why most experts say you should set aside three to six months' worth of income in an easily accessible, highly liquid account that you can tap when you have unforeseen expenses.