Money, Money, Money, Money….MONEY!!!
In this post I want to provide a “review” of savings accounts and CD’s (certificates of deposit). It’s not that these financial tools need a review; it’s that this post has served as a good refresher for myself.
I believe most people are familiar with savings accounts and certificates of deposit, so I am not going to write a lengthy post explaining what they are. If you would like to read more about them, I have imbedded the above links to Investopedia if you would like to refresh yourself on these financial tools. In fact, odds are that you, devoted reader, use/have used these financial tools in the past yourself.
When I was but a wee lad, I put the paltry sum of money that I gathered from couch cushions, mattresses and sock drawers into a traditional brick-and-mortar bank; specifically into a savings account (with a return of less than 1% at the time). Later, I moved my paltry (emphasis on paltry) sum of money to a CD (certificate of deposit) to gain a slightly higher yield (I think it was 3% return at the time). And, spoiler alert…by the end of my adolescent years I still had a paltry sum of money.
The biggest advantage of savings accounts and CD’s is their low risk nature. Since both are FDIC insured your investments are safe and you do not have to worry about losing money by using them. From personal experience, I have not lost any money by using these tools (and I have lost money investing in the stock market before). Also, with a savings account specifically you can access your money at any time; which can be an absolute “game changer” if you need to pay bills or take care of an emergency. CD’s do not offer this advantage, because with a CD you are not allowed to touch the money until the predetermined amount of time has passed, or you have to pay a penalty.
In a twist of irony, the biggest disadvantage of savings accounts and CD’s is their low risk nature. There will be a separate blog post on this, but there is a correlation (big $5 word there) between risk and reward; typically the higher the risk the higher the reward, and vice versa. Since savings accounts and CD’s are low risk, they are also low reward…you would be lucky to get above a 1% yield on a savings account or a CD in 2020.
As with all my reviews, it all boils down to “Is the Juice Worth the Squeeze?” And, as a good engineer, I give my unbiased “It Depends” as an answer. With most bank interest rates below 1% and most CD rates under 1% as well, if you have time and are willing to take on some risk, it might be best to try investing your money somewhere else…
For myself, right now a savings account is the right answer. I do not have Bruce Wayne or Scrooge McDuck levels of money…or even money like in the stock photo above, so I keep my money in a savings account where I can have access to it in an emergency.
Disclaimer, devoted reader. I am not a financial advisor; I am merely reporting on my own personal experiences so that you can gain some brief moment of levity from it.