Things to Do to Invest My Money
No one likes to think about investing right now, because it implies trusting your very important financial security to strangers. We have seen investment banks go down in flames due to corporate greed and dishonesty, causing citizens everywhere to pull their life savings from regular banking institutions that are being monitored and operating under strict federal guidelines.
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Instructions
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Open a Certificate of Deposit.
If you have a decent lump sum of cash that you don't need to use for a period of time, this is a great way to make your money work for you. Commonly referred to as CD's, certificates of deposit are an amount of money you place with a financial institution for a pre-determined period of time in exchange for a higher rate of interest than you would receive on a standard savings account. You agree not to withdraw the money until the CD matures, at which time you may decide to continue for another term or choose something else to do with the funds. Some banks will not allow early withdrawals at all except with proof of an emergency or death; other places will charge you a penalty for withdrawing before the maturity date. The penalty will usually be any interest you have earned prior to withdrawing the funds early, but check with your bank to find out for sure what, if any, penalties they may charge if you think you may need the money before maturity.
Certificate of Deposit terms can range anywhere from three months to several years, and the interest rate will be fixed for the entire term of the CD. Your banker will be able to calculate the amount of interest you can expect to have earned by the time your CD matures. This is a safe investment, and the only way to lose any money at all is by withdrawing the funds before the maturity date.
Keep in mind, however, that you cannot add to a CD during its term. Some banks may offer special CD's that provide for ongoing deposits, but that is rare. Most times you will simply have to wait until your CD matures if you would like to increase the balance.
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Create an Individual Retirement Account
There are two kinds of IRA's--Traditional and Roth. Your banker can discuss with you the benefits of both and help you determine which type of IRA will best meet your needs. Many banks offer IRA CD's, so that you can choose the term of the IRA the same as you would for a CD. Again, you will receive a higher rate of interest, but at the date of maturity your options will be different. Individual Retirement Accounts are regulated by the Internal Revenue Service, so any penalties the bank may charge for early withdrawal can also be accompanied by IRS penalties and federal witholding.
The primary benefit of an IRA is, of course, planning for retirement safely with a better interest rate than a savings account. You may also add to your IRA balance at any time you choose, up to the yearly "contribution limit." You may even make a "previous year contribution" to your IRA up to April 15th of the following year. Your IRA is also transferable, meaning if you find a higher rate of interest at another financial institution, you may simply have the funds transferred from IRA to IRA, with no penalties or IRS reporting involved. There may be a transfer fee from the originating institution, but it will likely be minimal.
Exceptions for early withdrawal of an IRA can be made for several different reasons, as long as you are able to provide proof. Among the list of qualified withdrawals are medical necessities or a new home down payment. Your financial institution can educate you on the full list. You will need proof of a qualified withdrawal in order to avoid penalties, and the same proof must be provided to the IRS, so keep records of everything.
There is also what I call the magical age of 59 1/2, in which case the bank will not charge any penalties for early withdrawal. However, in the event you decide to close the IRA, check with your bank regarding federal witholding requirements or income reporting. If you are going to "roll over" the IRA to another institution rather than transfer it directly, you will have sixty days to do so or be subject to IRS penalties.
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Learn about Fixed Annuities
This is by far my favorite thing to advise. You must seek the guidance of a licensed finanical advisor at your local bank or investment company in order to secure your funds this way. Fixed annuities are not insured by the FDIC; however, there will be an independent insurer bearing 100 percent of the responsibility for the funds, so your investment is safe. Many fixed annuities have what is called a "principal guarantee," meaning that you do not lose one cent of your initial investment if you decide to close the account before it matures. There will be several options for terms offered, anywhere from one year to several. The rates will vary from year to year, but usually the best rates will be in the first few years of a longer term annuity, settling into a better than average fixed rate after that for the life of the account.
If you are under the age of 59 1/2, it is understood that you will not need the money until you are ready to retire or receive an income stream from the account. At the age of 59 1/2, you may begin to draw up to ten percent of the funds per year. Your banker will discuss any tax implications with you, as annuities are considered a federally regulated product. Your banker must be licensed and should have that license on display in his office, according to federal regulations.
The most important thing to consider is what exactly you will need this money for before deciding to invest. The advantage of this type of account is that, depending on the amount, you can receive a lifetime income stream that will provide for you until death, securing your retirement. The interest can actually be triple-compounded as the money simply sits in the account and works for you. You may also discuss the advantages and drawbacks of a "variable" annuity with your licensed banker, but I have found a fixed annuity to be the better investment.
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Tips & Warnings
Be assured that any FDIC-insured institution is a safe place to put your money. In the event of a bank failure, your funds will be safe. However, your bank will have any information you are seeking regarding their assets and standings. Banking centers and credit unions are going to great lengths to reassure their customers that there is no need to take out your money to hide at home. Do not be afraid to ask any questions for your own peace of mind.
Make sure you know all the terms and restrictions of any deposit account you choose. Your banker should be happy to educate you on anything you don't understand, and if that is not the case, choose another bank. It is your money, and you deserve reassurance of your trust in any banking center willing to accomodate your accounts.
