Pros of Health Savings Accounts

Tax Advantages

All the amounts that you deposit in your HSA account are tax-deductible. Further, if you spend your withdrawals from health savings accounts on health-related and approved medical expenses, the withdrawals are also not taxable. As mentioned above, an individual in the 25% tax bracket can save up to $775 annually. This amount would increase if the individual has family or if the individual is above the age of 55. Further, the amounts invested with health savings account banks earn interest amounts, which are also not taxed in contrast to regular savings accounts. This interest amount might be quite small but this adds up to significant amounts over the years.

Planning with Response

The major benefit of investing in health savings accounts is long-term savings. The HSA is the emergency fund if and when you encounter health issues and related expenses in future. Until you reach the age of 65, you can withdraw the amount in your HSA account for expenses not related to health problems. However, you would need to pay taxes as well as penalty on such withdrawals. However, you are free to use your savings with health saving account banks as pure retirement money on any type of expense without any tax issues.

Cons of Health Savings Accounts

The major cons of HSAs are the various fees charged by the banks, credit unions or insurance companies such as account opening fee, transaction fee, withdrawal debit fee, and even a monthly maintenance fee. Further, the savings in HSAs are taxable in a few states though they are exempt from federal taxes. Additionally, the deductibles that you contribute to your HSA might not be enough to cover the medical expenses that could occur in any single year.

Certificate of Deposits

Certificate of deposits are basically a type of debt instruments that banks and other financial institutions issue to investors. The investors receive a fixed rate of interest for lending amounts to the institutions for mutually agreed periods of time. This period of investing in CDs could vary from a few weeks to even several years, known as maturity period of the CDs. Moreover, the interest rate that the investor earns usually increases proportionate to the period for which the investor places his money in the institution.

The main advantage of CDs is that the investor would be able to calculate the expected earnings at the initial stage of investment itself. Moreover, all CDs up to $100,000 are insured by FDIC, which is an ideal solution for seniors who could maintain their capital for later years of their lives. On the other hand, if the investor invests his money for longer periods in CDs, even though the interest rate is higher, the investor loses the opportunity of using his funds in alternative investment avenues that could offer higher yields.

Money Markets

Money markets are quite similar to CDS but one additional advantage with investment in money markets is a checking account. Money markets are very much like mutual funds, which attempt to maintain their share prices at $1, with the sole intention of increasing it above that value, while ensuring that it does not go below that value. When you deposit your funds in money markets, professional money managers handle your funds with great care by diversifying the investment in government T-bills, CDs, savings bonds, and other types of conservative and safe financial instruments. Thus, there is a balanced approach in money market investments, instead of putting all your eggs in one basket.

It is quite easy to open an account with providers of money market investment opportunities. They also provide a checkbook to the investors so that the investors could withdraw funds from the account whenever they need them. The main advantage in money market investing is that you have access to immediate cash either for emergency expenses or for alternative types of investments, since the money market account is just like your standard savings account or checking account. However, there would be a limit on the number of withdrawals in a single month. Further, the rate of interest in money markets is proportionate to the level of the assets deposited in contrast to the returns on CDs.

Step-up CD is when you can increase the amounts of your deposits at specific times. You can control the rate at which you deposit money, and many opt for this option since it guarantees more interest. The bank informs you of when the increase should happen and when the time comes, you’ll get higher interests on your investment. However, before making a purchase for Step-up CD rates, consider the following:

• The significance of the preliminary rates compared to the typical CD- this is something to consider especially when the initial rates are much lower than typical ones. In this case then the earnings on the investment will not be as much as you had anticipated. Even in the event that you give them time to grow, there won’t be a guarantee that you will earn as much as you would have if you had used traditional CD rates.
• Banks might give you the best rates but leave the tracking to you. This means that you need to constantly know when the best time to increase your CD rates is. In other instances, the banks only give you one chance to increase the interest rate. While other CD rates are automatically added, with step-up CD rates, you need to be alert and adept in perfect timing.

Something that is important to note is that with step-up CD rates have no guarantee when it comes to the returns you will get. It all depends on the market interest; if nothing happens, you cannot increase your interest in the step-up plan. In the end, this will lower the returns you’d have gotten if you had used traditional CD rates. However, with Step-up CD rates, it’s all about risk and if you get the best interest rates, the returns will be bountiful.

Maturity Period:

Maturity period can start from 7 days to over 48 months and this has a great influence on the CD rate. Sometimes institutions offer maturities that are flexible and allow the investor to select the period of time based on their need for the money. As a general rule, the CD rates are usually high if the period is longer.

Deposit Amount:

Every institution requires the investor to make a minimum deposit amount. This amount is to collect information regarding the interest rate and also the annual effective yield. The rates differ from institution to another institution

CD Interest Rates:

Most times, CD interest rates work on the basis of ‘Compounding Interest Rates’. This means an interest amount is accrued on the earned interest and this might be credited into the CD account monthly, quarterly or annually. This totally depends on the institution’s decision. Though most of the institutions compound interest every day they credit it based on their policy. There are even institutions that do not pay up the accrued interest rate in case if the investor closes the account before the interest credit date as per their policy. Everything will be laid out in the terms and conditions before one signs up for the CD account.

Withdrawal Penalty:

Almost all institutions levy penalty for early withdrawal, which ranges between 7 days interest rate to about a month interest rate.

Interest Payment Methods:

Investors are often provided with 4 different options to receive the interest that has been received on a CD.

• Receive the interest in the form of check monthly or quarterly.
• Receive a credit of interest into the checking account monthly or quarterly.
• The interest can be left in the account so that it adds to the certificate of deposit balance and that in turn earns an interest rate that is equal to the current interest rate of the CD.
• Receive a credit of interest into the savings account monthly or quarterly.

Different from Conventional Accounts:

A checking account is different from other bank accounts as this allows a large number of withdrawals and unlimited deposits whereas conventional saving accounts can impose limitation on both kinds of dealings. Moreover, checking accounts do not follow a high interest rate in exchange of liquidity offered. Due to these characteristics, checking accounts are also called as “Demand Accounts”.

Minimal Account Fee:

Most of the banking institutions are offering checking accounts with a minimum fee or sometimes with total fee exemption. Due to advancement in electronic banking, users can benefit from checking account through automated monthly routine payments after setting one time setup. Such accounts can be owned by low income persons and even by the students with no-frill terms and conditions. In some countries, banks are legally bound to facilitate the senior citizens by providing low/no fee checking accounts referred as “Life line “accounts.

Easy Payments of Debts:

Checking accounts allow their users to pay debits by using checks if they are not having cash with them. Moreover, debits can be paid also by using debit cards and ATM cards via accessing individual accounts.

The payment through checks is made in very precise and careful postings of withdrawals and deposits. The account holder is supplied with a good quantity of official checks containing all the routing and mailing information. A complete and accurately filled check is treated as cash by the recipient and transaction is confirmed. Later on when the check is deposited to recipient’s bank account, a bank official files the information electronically and the payer’s bank receives the cancelled check. In this way, the amount is debited from check writer’s account. In similar fashion, the process can be repeated over and over again without any hassles.

Fund Record keeping:

Owners of checking account have to track the availability of funds in their accounts. Besides this, bank also issues a routine statement which provides the transactions/payments history along with balance details. However, there is one thing that the owner of this account should be aware of; the check amount should never be higher than the account balance. In case if this happens, the account holder will have to pay a penalty fee. Some financial institutions lay restriction by sending in overdraft information to the account holder. However, in general, the bank usually recovers the loss by imposing a considerable value of service charges.

Opening the checking account is very simple. You need a proof of identification, such as your social security card or your driver’s license; you also need the proof of residence, such as a lease or any utility bill. Last but not least, you need the money that will be deposited in the checking account. Once you make the deposit, you basically trust the bank in managing and keeping your money safe. The bank will give you a debit card, as well as a checkbook. Using the debit card and the checkbook, you can withdraw money or make purchases or you can pay your bills.

Keeping tracks of the money you have in the checking account is very important. You will continually deposit and withdraw and you need to make sure that you don’t spend more money than deposited in the account; in case you do this, you will have to pay penalty fees and this surely isn’t a pleasant situation. This is the reason why you need to track the account; by doing this, you’ll get the chance to avoid paying penalty fees for spending more than the amount deposited in the account. The bank will surely help you keep a clear track of your account. You will receive monthly statements, you can check the balance by going to the bank anytime you want in order to ask for a clear situation. In addition to these, you can also check the checking account’s balance using the phone and through debit machines; last but not least, asking the teller at the bank at which you deposited the money is another way in which the checking account can be checked.

The checking account can prove to be very useful, so you should make sure that you get one as soon as possible. This is the way in which you can protect your money, so get such an account!

When it comes to the interest rates, the money market accounts represent a better investment; these accounts pay higher rates than the ones paid by the savings accounts thanks to the fact that the bank has more flexibility in investing the money deposited by the owner. The interest rate differs from one money market account to another, as it depends on the amount of money deposited in the account. In which concerns the withdrawals, the savings account is more flexible and it represents a better choice in emergency cases, as the bank allows more monthly withdrawals than it allows for the money market account. The minimum balance is another feature that makes a clear distinction between the money market accounts and the savings accounts; the minimum balance for a money market account is much lower than for a savings account. This is the result of the way in which the bank invests the money deposited in a money market account. The problem is that in case the balance falls too low, the owner of the account is forced to pay a fee. Last but not least, differences between the two types of accounts appear when it comes to insurance. The FDIC (Federal Deposit Insurance Corporation) insures the balance of a money market account, but only to a certain limit; this limit is imposed by the government. The deposits that are higher of this limit don’t have a full insurance, which might be a disadvantage in case the bank has problems.

Now that you know the differences between these two types of accounts, it becomes easier for you to make the choice that best suits your needs.

This habit could be started by opening an account for the child. Almost every bank in United States allow savings account for children. It is a very simple process and in fact, easiest bank accounts that will help young minds learn quickly. As a parent you can make the initial deposit and ask the child to deposit the saving money in the bank and also keep track of the balances by checking the statement. When they see that the balance grows as and when they deposit money, they will get enthusiastic about savings. When they understand this, as they grow older it will be easy for them to understand the different financial terms and options available.

These savings accounts for children apart from helping the child learn to save money also helps them managing the money and approaching money related issues cautiously. Many parents make the mistake of opening a checking account for young children. They fail to understand that the children will not be able to comprehend the concept of a plastic card as money or will use the check book. The child should at least be in the middle school or high school to understand the concept of plastic cards. Further, when the children touch and feel the real money they understand it better. This is somewhat related to the play-way method of teaching.

Parents should understand that before the child reaches adulthood, they are taught the importance of financial responsibility. This way they will not get into debt when they start handling money in the future. The best way and the basic way, is opening a savings account for the children.

Apart of opening a savings account and parents can lend some money to the children to buy something they wish and charge an interest to help the child understand the concept of debt. It is also important on the parent’s part to be very strict about interest collection and repossession of the collateral if the child does not pay back. When they learn it from home the hard way, it will help them in a long way in the future.

Other things that a child learns by using savings account include but not limited are:

• Learning to compute the interest earned from the savings account
• Learning the concept of debt management
• Learning the concept of plastic money (Middle School and above)
• Learning the concept of online transactions (under the guidance of a parent)
• Learning the importance of credit rating (high school and above)

With Step up CDs, the holder of the CD is able to receive interest increments after a predetermined period of time has elapsed. Once you purchase the Step up CD the bank will inform you the percentage increase in interest rate that they will offer after a certain period of time. After the period has elapsed you will come in and ask them to step up your investment interest rates and earn more. Step up CDs are characteristically fixed between 2 years and 5 years although there are others with shorter spans of up to 18 months. The interest rates can be adjusted on short term basis or long term basis depending on your preference. Short term increments are fixed and can be of after 6 month period. Long term increments will be based on average competitive rates.

Step up CDs always sound too good to be true, but they are valid and legit improvements on the traditional CDs. However it is important that you take into consideration a few factors that play a major role in determining returns on investment while using step up CDs.  First and foremost it is important that you know the initial interest rate compared to interest rates of other traditional CDs. If the initial interest rate is too low the step up CD even after rate increments may not earn you returns as you had expected. The returns may even be lower compared to having invested in a Traditional CD. Secondly it is important that you have a detailed background on the bank’s record in adjusting rates properly and timely in accordance with changes in economic conditions.

Step up CDs can be a great way to step up earnings on investment, but it is important to have detailed information about any Step up CD or Bump up CD package before making the final decision.

A liquid CD operates similar to a Traditional CD: You will have a fixed interest rate but in the event that you need to access your money between deposit periods, there is no early withdrawal penalty. Basically it is an amalgam between a savings account and a Traditional CD.

You Might be wondering what is the catch? Liquid CDs give investors more flexibility in terms of accessibility to funds and withdrawals. Withdrawals are limited to a specified withdrawal limit which should not be exceeded, if exceeded then and only then is there a withdrawal penalty. However the interest rates on the even best Liquid CDs are lower than those offered by Traditional CDs. On the up side they are at times higher than those offered by the best savings accounts and since it is a fixed interest rate with flexible accessibility they are a much more appealing investment option.

Liquid CDs are appealing because, with Traditional CDs in the event that interest rates hiked before maturity of your bond. You would not be able to take advantage of the current economic boom. With Liquid CDs however if interest rates hike you can easily withdraw your invested money without a penalty clause and invest it in a higher interest CD or Money Market account. Similarly if interest rates drop you can move your money to a fixed rate liquid CD and get better returns.

Risk –Free CDs, No-Penalty CDs or Flexible CDs are some of the common names used by various banks to refer to liquid CDs. Liquid CDs are insured investment hence they guarantee security and safety.