If you have money in your pocket, you probably wouldn’t mind having more. If you want to put your money to work, you probably want it to be as painless as possible. To help you achieve the goal of an easy increase in wealth, here are a few ways that help grow your money.
But first, these are places where you will lose money:
A shoebox above the fridge or under the bed. With the uncle who puts it in his closet, making sure to ask you what it’s for if you need it.
Why not keep my savings in a shoebox above the fridge? Or under the mattress? Or with my uncle?
Because inflation. Inflation erodes the value of cash. Most checking accounts don’t accrue interest (some do) but normally the amount is too low to prevent the loss of value. For example, in 1955 the median household income was about $5,000. Bread cost .18 cents and a new TV cost around $250. Today, the median household income is around $50,000; bread costs $2 and new TVs cost much more.
For government purposes, the Consumer Price Index ties into the Inflation rate. See historical Consumer Price Indexes on the Bureau of Labor Statistics site here.
The Federal Reserve aims for a 2% inflation target every year. Why? In a very very simplistic way, 2% inflation is consistent with the Fed’s mandate for price stability and maximum employment. Maximum employment does not mean 0% unemployment. Investopedia explains why 0% unemployment would not be a good thing.
Put money in:
The Bank:
Savings
A regular brick and mortar bank in Patchogue or Medford can easily set you up with a savings account. Make sure to ask what kinds of savings accounts they have available and what their terms are. If you fall under a certain amount of money in the account, they could begin to deduct funds each month (happened to me). Credit Unions also have savings accounts with marginally higher savings rates. The highest rates will come from online banks. Different from your traditional bank, online banks have no physical banks. They operate entirely online, letting you transfer funds through an app or website. Before you sign up to an online bank, make sure that they are FDIC-insured. In addition, make sure the online-only bank is really a bank.
But how would I deposit cash?
Depositing cash to an online-only bank takes some legwork but can be done. In order to deposit cash to an online-only bank, check to see if the online bank participates in an online ATM network (Moneypass and Starpoint, for example). Then, find an ATM that accepts deposits. Moneypass’ ATM locators are found here and Starpoint ATM locators are found here. Online-only banks tend to have the highest rates but only by a percentage point.
In brief, savings banks can get you at most a 1.1% interest rate.
Money Market Accounts:
Money Market accounts are similar to savings accounts. They are FDIC insured and are bank-accessible. Although higher deposit minimums are usually required MMAs pay a slightly higher interest rate. And, MMAs limit the amounts of withdrawals a person can make. Such as online savings accounts, online MMA’s pay a higher interest rate than branches.
Certificates of Deposit:
Bank CD accounts offer higher interest rates than savings or checking accounts. The risk is low. And, deposits are FDIC insured. Therefore, rates are low. CDs are for cash you don’t intend to use for a few years. That’s because you can incur penalties if you withdraw early. There are a few different kinds of CDs you can obtain, as explained by the Wall Street Journal.
Online CD accounts offer higher rates because they compete nationally for your money. Again, make sure to practice safe banking and carefully check the details before you try any online banking.
CD Laddering:
In case you decide to put money in a CD, make the most of your CD by laddering. Nerdwallet has a good article on what it is and how to maximize your CD here.
Next, I’ll cover bonds.