Deposit Accounts: Beyond Savings, Beginning Investing

by Amy Lillard

(3/9/2013) Consumers looking to save money have safe and reliable deposit account options to choose from, including savings accounts, certificates of deposit (CDs), and money market funds. All provide interest at varying levels, offering an opportunity to put money aside and have it grow.

However, if consumers are looking to invest rather than simply save, they can take advantage of higher-rate-of-return investing vehicles.

Whether investing to build retirement funds, college savings, or any number of other longer-term goals, these options provide the opportunity to earn higher rewards than typical deposit accounts. In exchange, the risk associated is higher. Each vehicle is more volatile than savings accounts, with the potential to lose invested money or returns as markets move. It’s critical then to conduct research and thoroughly understand each before purchasing.

The most common investing options include:

• Bonds. Similar to CDs, bonds are issued by corporations or government entities versus banks. They are essentially debt obligations used to fund business operations. Investors buy bonds and receive regular interest payments after a certain time.

• Stocks. When buying a stock, you are literally buying a small portion of a business. With the rise in value of a company, the value of your share will rise. The opposite is also true.

From here, there are multiple investing vehicles that can make use of bonds and stocks, as well as the “safer” options of CDs and money market accounts. Deposit money into a mutual fund, for example, and it will be divided among stocks, bonds and other accounts as the fund manager determines. It’s a fairly foolproof method of trying different options, and you can often choose funds based on your comfort with differing levels of risk. All the investors who choose a mutual fund share the profits, losses and costs associated with the fund.

Then there are the multitude of employer-offered investment vehicles. Whether it’s a 401K, a nonprofit 403b, or a pension plan, you have the option to take a portion of your salary and invest it. Often, employers match the contribution up to a certain amount. You have the option to spread your invested funds across bonds, stocks, and even money market and CD accounts as you see fit.

Setting aside money in different savings deposit accounts is a critical step. But for those looking to go beyond middling interest returns and save towards a longer-term goal, investment options provide a variety of choices.

For Additional Reading:

How Do I Invest?
http://www.fool.com/investing/beginning/how-do-i-invest.aspx

A Beginning Investor’s Best Friend:
http://www.kiplinger.com/article/investing/T041-C006-S001-a-beginning-investor-s-best-friend.html

Investing for Beginners:
http://beginnersinvest.about.com