Savings require discipline to spend less than you earn and set it aside for a later time. The time horizon for savings is short to near term (months to years). The expectation is to maintain liquidity, to preserve purchasing power by earning a set rate of interest, and to guarantee the return of your original money.
- Savings Accounts at banks, savings and loans, and credit unions are the most fundamental place for short term savings and offer the highest liquidity and subsequently often the lowest interest rates. These are backed by the federal government and are considered safe.
- Money Market Accounts are offered through banks, savings and loans, credit unions, mutual funds and brokerage firms. Often paying slightly higher interest rates, these are not usually backed by federal guarantees.
- Certificates of Deposit (CDs) are offered by banks, savings and loans, credit unions, mutual funds and brokerage firms. CDs are savings with a time commitment of months or years. Because there is less liquidity the interest rate is typically higher than savings account rates. CDs may have federal guaratees if offered through a bank, savings and loan or credit union.