Vivid childhood memories of walking into the bank (or neighborhood credit union) with a savings account passbook in one hand and a crisp five dollar bill in the other (half of the money that Aunt Shirley gave you for your birthday) seem to be almost ancient history to many. There was that sense of pride and feeling of accomplishment when the banking associate would give you back your personal passbook after your deposit was made. Watching the balance rise after each transaction, no matter how small the deposit was, made you more than proud to have your very own savings account.
But with CD’s, mutual funds, and so many other options, is a savings account just a thing of the past?
The problem with simple savings accounts is that they are the lowest on the interest-bearing account chain of interest rates that are dictated by the feds. In recent years, mortgage and other forms of interest have hit historic lows. If the rates being paid by the consumer are low, the rates being paid by the financial institutions as interest will coincide. You pay less, you get less. In the 1970’s, you could easily earn over 6% in a basic savings account, a rate that’s unheard of now. Of course, mortgage rates were nearly 18%, a number which isn’t even an option in today’s market, no matter how bad your credit history is.
Simple, passbook and/or statement savings account is a steady, consistent form of creating a rainy day fund. Your money is safe, as it’s insured by the Federal Deposit Insurance Corporation (FDIC) for banks, or the National Credit Union Administration (NCUA) for credit unions, both federal agencies created to insure your deposit up to $100,000. And, you can always access our money at any time without a penalty or fee.
The next step above a savings account is a Certificate of Deposit, or CD. This is also insured by FDIC or NCUA, and has a higher interest rate than a typical passbook or statement savings account. The catch is that your money is tucked away for a pre-designated period of time, perhaps 6 or 12 months. Taking money out your CD (other than the interest) yields you a sometimes hefty penalty for early withdrawal, which will vary between financial institutions and the terms of your CD.
Mutual funds are annuities have also been popular choices, as they can yield some great returns. Of course, the key word here is can. There are also risks involved with such financial endeavors, as there are no guarantees. Mutual funds and annuities are not insured by FDIC or NCUA.
So, are savings accounts just a fond memory? Absolutely not, for when it comes right down to it, easy, penalty free access to your own money will always be part of the American Dream.
