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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 FDIC insured.

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 account.

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 consolidation Click Here for a Customized Debt Consolidation Program to get out of debt...fast!

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