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Savings Vehicles

A savings account is basically a temporary holding place for cash that pays you interest.  The interest you receive may be based on the amount deposited.   Most institutions offer a variety of savings accounts dedicated to a specific purpose or family member.  Some common examples are teen saver accounts, custodial accounts for minor children, vacation clubs, individual development accounts* (IDA’s), etc.

A Certificate of Deposit (CD) is known as a time deposit.  In other words, you agree to keep the money deposited into the account for a specific amount of time.  The exchange for the time commitment is a higher rate of interest earned compared to a checking or savings account.  There are different minimum amounts and time periods (or maturity) available.  If you need withdraw the money before the maturity date, you will be assessed a penalty

Money Market Deposit Account (MMDA) is type of insured account that combines the benefits of a savings and checking account.  MMDA usually require a higher minimum balance and has limited check writing privileges in return for paying a higher rate of interest.  It’s important to note the difference between a MMDA and a money market mutual fund, offered by investment and brokerage firms.  Although both ‘money market’ are used to earn higher interest with accessibility, mutual funds are not guaranteed by the FDIC.  Always ask for clarification if you are not sure that the account is protected by the FDIC.  

Other (Saving) Accounts
Financial institutions may offer additional savings accounts that can be used for special, tax-advantage purposes.  Coverdell education savings accounts (ESA’s) are used to save for higher education expenses; individual retirement accounts (IRA’s) are used to save for retirement; and health savings account (HSA’s) are used to pay for medical expenses that are incurred as part of a high-deduction health insurance plans.  The reason we’ve isolated these accounts is that some institutions have investment services that offer stocks, bonds, and mutual funds that can be purchased in these accounts.  These financial assets are not insured or guaranteed by the FDIC or NCUA but may offer an opportunity for a greater return.  The Make Money Work section describes financial assets in more detail, the risks, and appropriate uses; always investigate before you invest.

*Sidebar:  IDA’s

Individual Development Accounts (IDAs) are savings accounts that low-income individuals can use to save toward buying assets, such as a home, education or job training. They are matched with funds from the government or private grants so that the savings add up quickly. In Pennsylvania, these accounts are called Family Savings Accounts (FSAs).


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