by Adhvith Dhuddu, Collegiate Times Regular Columnist
Wednesday, September 12th, 2007.
College teaches you many things, but one thing it does not teach you is how to make your money work for you. Financially successful individuals actually derive most of their wealth from their money's hard work and not the salaries they earn.
Most of us have our pocket money for the semester parked in a bank to which we pay absolutely no attention. Choosing the right bank for your savings and checking accounts is important, and recognizing this early in life will greatly help in shaping your financial future. Here are some things to watch out for.
Verify that any account you open with any bank is Federal Deposit Insurance Corporation insured. An FDIC-insured stamp essentially means that the federal government guarantees in any emergency (if the bank goes bankrupt, if the economy goes into a tailspin, if your money just disappears, etc.) to reimburse up to $100,000 of your money per account.
Think of this as free insurance for your bank account by the federal government. This practice was established in the early 1930s when the the Great Depression wiped out the savings of millions of Americans. Fortunately for us, most of the banks and credit unions in Blacksburg are FDIC insured. An online bank is where your vigilance is needed.
The next thing to observe is the interest your bank is paying you for your savings account (also called the savings rate). A savings rate is how much the bank pays you as an incentive to save. Most local banks (like Wachovia, SunTrust, Freedom First Credit Union, etc.) pay one to two percent in the best-case scenarios. This is abysmal, as other banks offer higher savings rates. Although our pocket money for the semester is generally not more than a few thousand dollars, learning to save in banks with a high savings rate is a good practice. One online bank that I found reliable, safe and easy to use with a high savings rate is ING Direct. Here, you get a competitive 4.5 percent savings rate with no minimum balance requirements or fees of any kind.
Therefore you can have your money earn five percent interest online and occasionally transfer money to a local checking account for your expenditures. Another good online bank with a 5.05 percent savings rate is Emigrant Direct. None of the local banks offers such a competitive rate.
Another great way to park unused or "dead" money and also earn a tidy return for risk free is via Certificate of Deposits. You can purchase CDs from banks from $500 to $100,000 for time periods ranging from three months to 20 years at competitive interest rates. When you purchase a CD for a specific amount and time period, you are promising the bank that you will leave that money untouched for the promised time period, for which the bank will reward you with some money.
For example, if you buy a $1,000 CD for six months with a 5.25 percent rate, at the end of the six month period the bank is obligated to return your $1,000 and reward you with an additional $26.25 for lending them the money for six months. Although this is not a stellar return on your $1,000 investment, it's better than nothing and most importantly it prevents you from spending that $1,000 on frivolous things you otherwise might have purchased. Think of investing in CDs as another form of saving but with a higher return.
Of course, you should purchase a CD only if you are certain that you won't need the money in the near future. An early withdrawal of funds will prompt the bank to charge you a fine. Again, local banks do offer CDs but their rates are not as competitive as some online banks. ING direct, E-loan and IndymacBank offer amazing rates for your CDs. For example, a $1,000 CD for a five-month period will earn you a handsome 5.45 percent on your investment if purchased from IndymacBank.
A good source for the prevailing rates for savings accounts, checking accounts, CDs, etc., is www.banx.com and www.bankrate.com. You can also check how much your local bank is offering and compare to see if there are other banks in your locality that can serve you better.
Next week: See how you can simplify managing money amongst friends, roommates and family using a versatile online resource.
Online link to this article:
http://www.collegiatetimes
Wednesday, September 12th, 2007.
College teaches you many things, but one thing it does not teach you is how to make your money work for you. Financially successful individuals actually derive most of their wealth from their money's hard work and not the salaries they earn.
Most of us have our pocket money for the semester parked in a bank to which we pay absolutely no attention. Choosing the right bank for your savings and checking accounts is important, and recognizing this early in life will greatly help in shaping your financial future. Here are some things to watch out for.
Verify that any account you open with any bank is Federal Deposit Insurance Corporation insured. An FDIC-insured stamp essentially means that the federal government guarantees in any emergency (if the bank goes bankrupt, if the economy goes into a tailspin, if your money just disappears, etc.) to reimburse up to $100,000 of your money per account.
Think of this as free insurance for your bank account by the federal government. This practice was established in the early 1930s when the the Great Depression wiped out the savings of millions of Americans. Fortunately for us, most of the banks and credit unions in Blacksburg are FDIC insured. An online bank is where your vigilance is needed.
The next thing to observe is the interest your bank is paying you for your savings account (also called the savings rate). A savings rate is how much the bank pays you as an incentive to save. Most local banks (like Wachovia, SunTrust, Freedom First Credit Union, etc.) pay one to two percent in the best-case scenarios. This is abysmal, as other banks offer higher savings rates. Although our pocket money for the semester is generally not more than a few thousand dollars, learning to save in banks with a high savings rate is a good practice. One online bank that I found reliable, safe and easy to use with a high savings rate is ING Direct. Here, you get a competitive 4.5 percent savings rate with no minimum balance requirements or fees of any kind.
Therefore you can have your money earn five percent interest online and occasionally transfer money to a local checking account for your expenditures. Another good online bank with a 5.05 percent savings rate is Emigrant Direct. None of the local banks offers such a competitive rate.
Another great way to park unused or "dead" money and also earn a tidy return for risk free is via Certificate of Deposits. You can purchase CDs from banks from $500 to $100,000 for time periods ranging from three months to 20 years at competitive interest rates. When you purchase a CD for a specific amount and time period, you are promising the bank that you will leave that money untouched for the promised time period, for which the bank will reward you with some money.
For example, if you buy a $1,000 CD for six months with a 5.25 percent rate, at the end of the six month period the bank is obligated to return your $1,000 and reward you with an additional $26.25 for lending them the money for six months. Although this is not a stellar return on your $1,000 investment, it's better than nothing and most importantly it prevents you from spending that $1,000 on frivolous things you otherwise might have purchased. Think of investing in CDs as another form of saving but with a higher return.
Of course, you should purchase a CD only if you are certain that you won't need the money in the near future. An early withdrawal of funds will prompt the bank to charge you a fine. Again, local banks do offer CDs but their rates are not as competitive as some online banks. ING direct, E-loan and IndymacBank offer amazing rates for your CDs. For example, a $1,000 CD for a five-month period will earn you a handsome 5.45 percent on your investment if purchased from IndymacBank.
A good source for the prevailing rates for savings accounts, checking accounts, CDs, etc., is www.banx.com and www.bankrate.com. You can also check how much your local bank is offering and compare to see if there are other banks in your locality that can serve you better.
Next week: See how you can simplify managing money amongst friends, roommates and family using a versatile online resource.
Online link to this article:
http://www.collegiatetimes
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