Congratulations on having saved $200. A good savings plan is the successful start to having cash available for investing. Investing your excess savings is critical, regardless of how small the amount, since money loses value due to inflation over time. This means that if you keep your $200 in cash for a few years, it will slowly begin to deteriorate in its purchasing power (it will in effect become $190, $180, etc).
To avoid this, your money should be working for you at all times in an interest-bearing investment account. The interest rate you receive should be greater than or equal to the current inflation rate to avoid deteriorating your money’s value. If you don’t know the inflation rate, you can assume it is about 3%, which has been the historical average. I recommend against investing in any traditional bank savings accounts, since the interest rate is rarely high enough, and usually very unfair. Traditional banks have high overhead costs that they need to pay before they even think about giving you interest on your balance. Some online and traditional banks now offer e-savings accounts with very competitive interest rates. These accounts are accessible and safe, and are almost always protected by the federal government in the same way as traditional bank accounts. They are the best option for keeping your money in the bank while receiving the highest rate possible.
The alternative option is to invest the $200 in securities. These can be both low-risk (from government bonds) to high risk (small start-up companies), but will almost always yield a higher annual gain than bank savings accounts. To invest, you would need to open a trading account at one of the many online or traditional brokers. Many, such as Sharebuilder, tailor their services specifically to low-balance accounts, and you can open an account with $200 without incurring any unnecessary fees. Trades to start cost only $4 with the standard plan, which in the online trading world is dirt-cheap. You must make a choice as to how you’d like to invest your money based on risk tolerance, your investment horizon, and other options. Most brokers offer online questionnaires that help you pick the best investments.
The important thing to remember is that there are many low-risk alternates to cash, checking, and savings accounts that can provide a way for your money to keep up and even beat the rate of inflation. Don’t be afraid to explore the options. Happy investing!