Stewardship Well Done Journey

Step 7 – SAVE

Roadblock #2 – What type of account should I use?

See if this scenario sounds familiar … you have decided to start saving for your 7 year old’s college education. You would like to open an account that will earn some interest, but you aren’t quite sure what is available, or how much risk is involved. You intend to do a bit of research this weekend and open an account next week. But for now, you just put the money in your bank savings account so you won’t spend it. One week later … one month later … one year later … your money is still in the bank savings account earning .05% interest.

We often hear questions from clients about what type of account to use for their savings. High interest rates are attractive … but is the risk worth it? To help with these questions, think of saving in terms of short-term, mid-term and long-term goals. Below is a simple guide we hope will help.

• Short-term goals (1-3 years) might be for vehicle repairs or replacement, a washer or dryer, summer vacation, or some other special purchase. Saving in a dedicated bank account is usually the best move since the purchase is in the near future. You could seek out banks or credit unions that may offer introductory bonuses or savings accounts with a slightly higher than average interest rate.

• Mid-term goals (3-7 years) might be a home remodel, camper, piece of property, or more expensive vehicle. This type of savings should generally be in a low-risk account. CDs can be used or other fixed return investments. Just be mindful if there are any costs or surrender charges associated with your investment. It is not advisable to expose these savings dollars to risk in the market because there is not time to recover from potential volatility.

• Long-term goals (7+ years) might be college, special family vacation/event or retirement. Savings can be invested for growth. These funds will experience volatility, but there is enough time to let compounding work.