For people who want to create a lifestyle of financial freedom, there are very few practical ways to make it happen outside of simply saving money on a consistent basis. Of course, there are the outliers who will inherit a literal fortune or win the lottery, but for the average American who seeks to create real wealth and build substantial net worth, the answer is not daytrading, but rather the consistent habit of saving money. This article briefly describes the three most common types of savings accounts.
Traditional Bank Savings Account This is the most common type of savings account. Generally, your local bank will allow you to open a savings account with no up-front fees. This money is completely liquid, which means you are able to withdraw money at any time. In fact, in today’s advanced world, you can generally withdraw money from your savings account 24 hours a day via an ATM. The primary drawback of a traditional savings account is that your money will earn little interest.
Money Market Account Also offered through a local bank, a money market account is also liquid, but not as liquid as a savings account, as it can take a business day or two to receive your withdrawal request. The primary advantage, however, is that interest rates on a money market account will always be much more competitive than a traditional savings account. At the same time, your money is just as safe since money market funds are invested in government bonds and other forms of U.S. government debt, which is currently considered to be a safe investment.
Certificate of Deposit CDs are one of the most popular form of investing for many people because they tend to offer the highest interest rate compared to all cash savings investments. The interest rate will generally correspond to the length of time your funds are invested. The primary disadvantage of a CD is that it is not as liquid. Funds cannot be withdrawn without paying a small penalty until the agreed-upon time, which ranges from three months to several years.
Jason Hoerr is a market analyst.
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