Are you interested in earning interest?
You earn small amounts of interest by leaving a little money in your savings accounts or in some checking accounts. If you don’t spend every dollar you get, you’re wise to put a portion of your paycheck into savings that will work for you. Unspent money can make a profit in a number of different ways. You can invest it in everything from certificates of deposit (CDs) to money markets, mutual funds, stocks, bonds, even property.
Some folks prefer predictable interest investments
MONEY MARKETS (MMAs). You can step up your interest a notch by opening a money market account (MMA). These ‘super’ savings accounts usually earn more interest than basic savings. The only drawback: the minimum deposit and account balance are usually higher than regular accounts require. MMAs are sometimes attached to savings or checking accounts, mutual funds or brokerage accounts. There, they serve as holding places that earn interest while waiting for you to decide how to spend dividends and other earnings.
Cash put into a money market account is usually invested in low-risk products such as certificates of deposit (CDs) or government securities. MMAs are still relatively liquid, though. That means you can readily access money if you need it. On the other hand, you won’t be able to touch money in a CD before its term is up without facing a stiff early-withdrawal penalty. With MMAs, you don’t need to understand complexities of the stock market, negotiate deals, or make buy-or-sell decisions. You get your money back, along with some interest, whenever you want it.
CERTIFICATES of DEPOSIT (CDs). Interest rates on CDs are also a bit better than pennies earned on regular savings accounts, or dimes made in money markets. CDs don’t pay as much as riskier investments, but they can be reliable ways to bring in steady income. If purchased at a federally insured institution, your CD is backed up to $250,000 by the U.S. government. You know from the start exactly how much interest you will earn, ranging from less than 1 percent to a few percentage points or more. Rates depend on U.S. and world economic conditions – and how long you are willing to tie up your money. Short-term CDs, such as three-to-six months or a year, bring in less interest than longer-term commitments. You earn the same amount of interest in the entire life cycle of your CD.
PERSONAL LOANS. If you love the idea of earning a steady rate of return vs. ups and downs of other investments, there’s a riskier way to make even more interest. You loan your money outright to someone who needs cash for a car, house, college degree, etc. Direct loans like these are not as safe as MMAs or CDs, because people who need them sometimes have bad credit or are unable to get money through traditional channels. Lenders chance it, though, as they can charge much higher interest rates. For a typical $150,000 loan at 13 percent interest, for example, the lender makes $19,500 per year. The greater the risk, the higher the earnings. To learn about other high-return investment options, contact Ronald Van Surksum, rvansurksum@aamllc.
Manage Your Money is provided by Advanced Asset Management LLC Ronald Van Surksum, CFP 4555 Wilson Ave SW – Suite 2 Grandville, MI 49418