Answer:
Robert wants to get serious about saving for a new car. Which account would you recommend? Why?
- Since Robert has a long term goal for his money and wants to earn a higher interest rate, a certificate of deposit (CD) will probably be the best choice. It pays a higher interest than a savings account.
Cindy has been working for 8 years, and she’s built up a huge emergency fund -- $45,000, which would be 6 months of her salary. She’s hoping to earn a bit more interest than she currently is with that $45,000 just sitting in her traditional bank’s savings account. Which account would you recommend? Why?
- Money market accounts earn a higher interest rate than a normal savings account, but they are generally better suited for individuals that have a relatively high balance in their accounts. Since Cindy has saved $45,000 already in her savings account, now it is time to deposit the money on a money market account.
Janelle likes to keep all her savings goals separate, so she has an account for each one, including an account to save for her college textbooks every semester. She buys books about every 6 months, with roughly $550 due each time. She likes to save the money up in installments, with auto-deposits from each of her twice monthly paychecks. She’s wondering if her online savings account, earning 0.75%, is still her best option for monthly deposits toward her textbooks. Which account would you recommend? Why?
- Probably Janelle has already chosen the best possible option. To be honest, there are really few alternatives that you can seek when all you will save is $550 every 6 months. She is already earning a decent interest rate for a savings account, and even if she looked at different options and eventually found one that paid slightly better interest (e.g. 1%), it wouldn't make a great difference.
