Growing up, we put our savings into piggy banks. Then, we put it into a bank account, likely at the same bank as our parents. As life goes on, we leave it there, letting our pay checks go in and our bills come out.
But guess what? Our money doesn’t have to just sit and fester until we decide to use it. In fact, we can make our savings grow without taking on other jobs or adding income.
This, my friends, is what making the most of your savings is all about. Upon scavenging resources to figure out the best strategies for growing funds, four tactics continued to appear: High interest savings accounts, alternative investments, certificates of deposits and bonds.
High Interest Savings Accounts
Your bank doesn’t have to act like your sedentary Superman moneybox that Nan got you for your sixth birthday. In fact, if your savings are doing the same things as a moneybox, you’re definitely banking wrong.
To find a good savings account, you’ll need to look into what various banks have to offer. Check out interest rates, establishment fees and withdrawal penalties that may imposed on your account.
A high interest or high yielding account, would earn you a high interest rate, but may require a big upfront deposit and will likely put limits on your access to the money. If you think you’ll need to take money out of your savings every now and then, a bank with a decent interest rate and low or no withdrawing penalties would suit you best.
Here’s where things get a bit tricky, because the term “alternative investments” encompasses a large scope of things, from hedge funds to investing in precious metals. Often, a financial advisor would talk you through alternative assets and fund managers would handle them, however, here’s the 4-1-1.
Taking some of your money out of a standard savings account and funneling it into an alternative investment fund helps with your financial diversification, which helps reduce the risk of losing your dough.
So why exactly would you want to bother with alternative investments? Because their uncorrelated nature to both the bond and equity markets reduces your exposure to “systematic market risk factors”.
In layman’s terms, you can’t predict how well your alternative investments will go, but you are likely to see gains because their outcomes won’t be directly influenced by risks that affect the overall market. In even more layman’s terms, if the market goes to shit, your alternative assets could receive a much lesser blow or impact than those holding stocks or securities.
Certificate of Deposit (CD)
We’re back to the simpler stuff now! You can think of a CD as a savings account, because that’s essentially what it is. However, they differ in that a CD locks your money for a set amount of time at a set interest rate.
The great part about CDs is they guarantee you said interest rate for the entire time your money is locked in, so you’re certain to grow your savings. The downside would be you couldn’t withdraw the money until the CD time expires, which could be six months or even years. If you do withdraw, a penalty will ensue and you’ll likely be made to hand over any interest your savings grossed in that time.
If you know you’re going to want to buy a house in a couple years and have a chunk of money already saved, a CD could be the way to go, since your money is secured and guaranteed to grow over time.
Instead of loaning money to cousin Betty, who promised to pay you back with interest, you could take your money and loan it to an entity for a variable or fixed interest rate. After all, you know Betty is unreliable….
Sometimes, the government or corporations need to borrow money for projects or to continue functioning, and they do so in the form of bonds. In return for loaning your money to them, you are given a bond that will state the interest rate to be paid back when the loan matures.
The low-risk associated with buying bonds is what makes them a more attractive way to grow your reserves, so long as you allow the bond to reach maturity.