PUTTING IDLE CASH TO WORK
We all need money to pay our monthly
bills and expenses. However, what is the best type of account to place
this idle money in? After reading this article you will learn what
type of accounts are available to “park” idle cash and which accounts
may be right for you.
TYPE OF ACCOUNTS AND INTEREST EARNED ON EACH ACCOUNT:
Checking Account 0%-2% (depending on balance)
Savings Account 1%-1.5% (depending on balance)
Redeemable CD 3.5%-5% (depending on location of account)
Money Market 4.5%-5.5% (depending on location of account)
Today, most checking accounts yield only 1%, saving account yield
about 1.5%, redeemable Certificate of Deposits (CD) yield about 4%,
while money market accounts can yield 4% or higher. So how can you
structure your accounts so the majority of your idle cash will be
earning the most interest possible?
PURPOSE OF EACH ACCOUNT:
A saving account to designed to allow you to park cash for the
very short-term. You could use a saving account for money in which
you would need access to in a relatively short time period. Some
saving accounts allow you to access the money by using an ATM card.
Bank savings accounts are FDIC insured. Checking accounts give you
check writing advantages and ATM access. Bank checking accounts are
Redeemable Certificate of Deposits allow you to withdraw a
portion of theCD without incurring an interest penalty. This hybrid
CD pays a higher interest rate than a saving or checking account and
offers limited access to the money. It is an outstanding product. It
is FDIC insured.
Money Market Account: Most banks, brokerage firms and mutual fund
companies now offer money market accounts (MMA). A MMA usually pays
a high rate of interest and offers limited check writing capability.
Some MMA's offer debt cards, as well. The disadvantage of a MMA is
these accounts are NOT FDIC insured. Some MMA require a minimum
monthly balance requirement. If you decide to open a MMA, make sure
that you open a account that does not require a large minimum
monthly balance to be maintained.
A STRATEGY FOR YOU TO USE
Combining a Savings Account and a Redeemable CD:
A saving account pays a very low rate of interest when compared
to a CD. One of the best ways to increase the yield on cash setting
in a saving account is to take most of that money out and buy a
redeemable CD. As explained above, a redeemable CD allows you to
withdraw some if not all of the money without incurring an interest
penalty. Talk with your bank, credit union or broker to find out
what terms they offer on redeemable CD. Either way, they make an
excellent alternative to low paying saving accounts.
Two MMA and Checking Account Strategies for you to use:
#1: Use a MMA as your primary checking account. Thus, you money
will be earning a high rate of interest. However, you need to find
out what how many checks you can to write each month. If you go over
the monthly check limit, you may be charged a fee.
#2: Use the MMA as your catch-all account for all of your cash.
Deposit your paychecks, rental income checks, etc into this account.
Since most MMA only allow limited check writing this type of account
should not be used as your primary checking writing account if you
write a large number of checks each month. However, if you only
write two or three checks a month, you could a MMA as your primary
Once you have your money market account set up, write a check
every month and deposit it into your regular checking account. Use
your regular checking account to pay all of your monthly bills. The
benefit of setting up your accounts in this manner is that over time
you will earn more interest on your money, because most of it is
setting in the higher interest Money Market Account. The
disadvantage of this strategy is it will take extra time at the end
of each month to balance each account.
PAY OFF CREDIT CARDS
Paying off high interest credit cards
is allow an excellent way to put idle cash to work. Even
interest-bearing saving and checking accounts can't compete with the
double digit rates credit card companies are charging. Consider using
your idle cash to pay off debt card debt. If you are looking for a
customized approach to debt
Here for a Customized Debt Consolidation Program to get out of debt...fast!
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