Assuming that you, like many of us, start off investing on a small scale, it is good to get in with safe, reliable investments that cater towards those that my be starting with small balances. Once you build your savings into larger balances, then you can move into a variety of investments that vary in their level of risk and also their level of returns.
A great place to start, particularly in today’s banking world, is a savings account. A few years back, ING Direct made a big splash with their entirely on line savings accounts. This allowed them to shave costs and give great interest rates to customers. Right now you can keep as much or as little money in their savings account and get 4.5% interest. Whats also great is that many of the bigger banks have had to start offering similar rates to compete due to ING’s great success. Citibank, for one, offers an on line savings account with similar rates, currently 4.65%. They are also beginning to offer checking accounts with good interest as well, as high as 4% at ING.
Those are a great way to keep your savings liquid in case you do need them for some reason, but also be earning good interest. If you have built up some money and want to start gunning for better interest rates, another great step can be CD’s or Bonds. Many of us have heard of savings bonds through the US Treasury, those can offer good rates, but many commercial CD’s (or Certificates of Deposit) can be much higher. A CD simply means that you agree to keep your money in place for a certain amount of time, thus allowing the financial institution to use that money and give you higher interest in return. There is more of a commitment on your part, but these accounts are also generally FDIC insured, so your risk is minimal.
As you start to accumulate more money, you can start to think about bigger and more exciting possibilities. Many of the mutual funds or money-market and investment accounts require you to start with a balance of 10,000 dollars or more. There are those that you can start with a monthly investment plan, but having to keep a certain balance is more common. These funds offer various kinds of portfolios (perhaps real estate, various corners of the stock market, etc.) to cater to any type of interest, generally the higher the risk, the higher the return.
An entirely different realm of savings can be done through your workplace, in 401k type accounts, certain kinds of which allow you to make pre-tax savings. This means you might lose 100 dollars a month from your take-home pay but 150 bucks go into your account. Nothing better than free money right! Of course these accounts are generally less liquid, you can’t just take your money out whenever you want without penalties. To do these right, you may want to consult a financial expert or a friend who works in the industry who can help you get it exactly right.
When it comes down to it, just remember, those that get it earn interest, those that don’t pay it. Anytime you have to make a trade off between something you want now or waiting to get it in the future, sock that money away somewhere where it will be working for you. Compulsive saving is a far healthier habit than compulsive spending!