Savings accounts are perfect for people who don’t want to take any market or investment risks with their money and save it for a future date. There are several ways to build up your money, and most savings accounts have easy access or are for a fixed term. Find out which account is right for you:
Individual Retirement Account (IRA) An IRA works similar to a 401k in that you are investing money and letting that money grow until retirement. These earnings are tax-deferred until withdrawals begin at age 59 1/2 or later. An early withdrawal will result in a penalty.
Roth IRAs vs. Traditional IRAs
- A Traditional IRA allows you to save for retirement with tax-deferred earnings and the possibility of tax-deductible contributions. Years later, when you withdraw money from your IRA during retirement, the amount of your withdrawal is counted as taxable income. Once you reach age 70 1/2, however, you must remove a minimum amount from this IRA each year.
- A Roth IRA is the other way around: With a Roth IRA, you contribute “after tax” money so you don’t get a tax break up front. However, the money in the Roth IRA grows tax deferred and the earnings could potentially be withdrawn tax free after age 59 ½. Like a traditional IRA, your investment earnings from a Roth IRA aren’t taxed while your money grows, but unlike a traditional IRA, you’ll pay no taxes on your investment earnings at all if you’ve had your Roth IRA for at least five years. Unfortunately, not everyone qualifies for a Roth IRA like if you are single, making over $112,000.
Certificates of Deposits (CDs) CDs are a time deposit that grows interest over a locked term ranging from 6-60 months. There is a $1,000 minimum opening deposit, and while it is possible to withdraw funds early, a penalty will incur. They generally have more return than a Money Market, but the money is tied up in the term.
Money Markets – Money Market accounts are like a checking account with limited withdrawals. These liquid assets earn interest daily on tiered balances with a $5,000 minimum. Unlike CDs, this account is more flexible and allows you to withdraw up to three times a month without penalty.
Hopefully this has made the differences in savings accounts easier to understand. If you are interested in setting some money aside for the future or have any questions, check out our rates and talk to Member Services at 636.720.2400. And if you have any savings advice, we’d love to hear them in the comments!
The minimum balances mentioned in this post are for West Community Credit Union accounts.