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Believe it or not, it is possible for the average investor to get high interest savings accounts. With rates upward of 2%, these high interest savings accounts may not make you rich or compete with the growth of stocks or mutual funds, but as far as savings accounts go, they're impressive.
High interest savings accounts are great tools for emergency cash, short-term investments, and any money that you want to gain a small return on for limited risk. It's important to remember that the rates on high interest savings accounts could be less than the rates of many bonds and CDs, which are also considered lower-risk investments. Before you settle on a high interest savings account, compare the rates of all low-risk investments.
Of course, bonds and CDs can lock you into their vehicles for a certain period of time, which can give you some liquidity risk. For instance, if you invest in a bond and need to liquidate, you must find a buyer. If new bond rates are higher, you might have to sell at a discount in order to get any buyers. In addition, CDs might have charges if you take your money out before it matures.
|Jennifer Mathes, Ph.D.|