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November 2006 |
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'Interesting' Ways to Make Money Are you getting your share of money for nothing? One of a handful of financial joys in life is opening an account statement and seeing that you've "earned" interest. Consider that interest earners are getting paid for simply having money, which is something we all want to do anyway. No financial planner will tell a person who's still working that they should have all their money in low-risk, interest-bearing investments. But, we all should have some cash for emergencies and we should earn the best interest rate we can on the cash we are setting aside saving for a home or car. To weigh your options, let's look at the most common and safest sources of interest, from the typically smallest payoffs to the typically largest. Interest-bearing checking account. Though traditionally checking accounts don't pay any interest, there are now plenty of interest-bearing checking accounts out there. These usually pay below one percent interest. The rationale for such an account is that any interest is better than zero interest, which is what most checking accounts provide. But, some surveys show that interest-bearing checking account holders pay a lot more in fees than their zero-interest counterparts. Also, interest-bearing accounts tend to require a higher minimum balance. So, make sure your checking account fits your needs first — such as having plenty of ATMs in your area — and pays interest second. Passbook or savings account. The technical difference between a passbook or statement savings account is actually how the funds are tracked. The passbook account records deposits and withdrawals in a book that the customer brings to the bank or thrift during each transaction. The statement savings account uses mailed statements to communicate the transactions and interest earnings. Interest rates on savings accounts can vary wildly. Some banks offer rates at less than one percent. But if you look online, you can currently find yields more than 5 percent. The difference is enormous. The upside to a savings account is that most offer complete liquidity and no minimum balances. They also come with Federal Depositors Insurance, which means the government will reimburse up to $100,000 if the bank or thrift ever collapses financially. Money market account. A money market account is really a mutual fund, pooling the money of thousands of investors to buy various types of investments in what is known as the money market — government bonds, corporate bonds and other short-term debt securities. Money market accounts usually require a minimum balance. But they can be withdrawn on short notice and some even offer limited check-writing privileges. Because of their liquidity, money market accounts are great places to put emergency funds. Again the rates vary wildly. Money markets usually boast better interest rates than savings accounts but come with more restrictions. U.S. government securities. One of the safest investments the world has ever known are U.S. government securities, such as T-Bills, T-Bonds and Treasury Notes. Each has different denominations and maturity dates. But the interest rates or yields beat most savings accounts. For more information on investing in government securities, visit www.treasurydirect.gov. The certificate of deposit or CD. The most head-turning interest rates are often found in CDs, though they can vary wildly. So, shop around. They are often higher than government securities. The downside is that you have to tie up your money for a fixed term or face paying the penalty. Banks generally pay a higher rate for holding your money longer. CDs are only for people who can part with their money for the full term. If you pay the penalty, you will have wasted your time. |
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