The Best Savings Option
Saving money is more than setting aside funds for a rainy day. You should save money for both the expected and unexpected circumstances that will come your way. Whether you are saving money for an emergency, funding your retirement, building wealth or simply reserving cash for holidays, there are many types of accounts available for both saving and growing your money over time.
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Savings
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There are many types of savings accounts available from banks and credit unions. Basic interest-bearing accounts allow you to set aside money as you wish and receive interest payments on your average balance. These types of savings accounts provide the most accessibility to the account-holder. You can also place your money in money market accounts, certificates of deposit and low risk, government-backed savings bonds.
Growth
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If you want your savings to grow faster than traditional savings options through your local bank, you may want to consider investing your money into investment accounts, such as IRAs and mutual funds. These accounts allow you to invest in stocks and bonds for a potentially higher return on your money. Depending on your age and risk comfort level, you can choose to invest conservatively for a lower chance of loss, or you can opt to invest your money aggressively, which could yield higher returns at a higher risk of loss.
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Goals
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Choose a savings method that corresponds to your goals and intentions. If you are saving for retirement, take advantage of the tax benefits available through IRAs and Roth IRAs. Though the government limits the amount you can contribute to these accounts each year, you can either lower your taxable income with tax-free contributions to a traditional IRA, or you can benefit from tax-free retirement growth and distributions with a Roth IRA. Similarly, opening a 529 savings plan to set aside money for future college or educational expenses will yield immediate federal tax benefits on contributions.
Many banks and credit unions also offer specialty savings accounts. If you wish to save money for holiday gift-giving, you may be able to open a holiday account that provides you with an automatic distribution during the holiday shopping season. Additionally, kids can open children's savings accounts, usually fee-free and without a minimum balance requirement.
Expert Opinion
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According to Dave Ramsey, author of the New York Times bestseller, "Total Money Makeover," and host of The Dave Ramsey Radio Show, you should approach saving in an organized and tactful manner. Your savings strategy should include an emergency fund of between three and six months of living expenses in the event you lose your job or face a large, unforeseen expense. After you establish your emergency fund, Ramsey suggests investing 15 percent of your household income into a Roth-IRA retirement account where your money can grow tax-free until retirement. Once you have begun to fund your retirement, Ramsey suggests saving for your kids' college costs.
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