Which of the following is a type of savings vehicle? Yet another question we received during on one of our webinars last week. This time, the person asking the question was a 15-year-old high school freshman. I cannot even tell you how excited I was when this person told me their age. Getting interested in saving or investing at 15 years of age is remarkable.
When people speak about savings it mostly has to do with putting money away in some sort of savings account and allowing that money to grow at very small interest but without the “risk” of losing the principal amount (that is if your account is 250k or less which makes it FDIC Insurable). In order to answer the question to “which of the following is a type of savings vehicle?”, we are going to cover all of the obvious (and not so obvious) ways to save for the future.
The Obvious Ways to Save
We aren’t going to go over spending less money as a savings vehicle. Stony Brook Securities teaches it’s students to make as much money as humanly possible in the markets. We aren’t going to change that here.
Here are some of the ways we can “save by investing”.
Online Savings Account
We can put our money in an online savings account where it gains higher interest that in a normal checking account. Why the higher interest? Because online savings accounts do not have all the employees and locations that brick and mortar banks do. They have far fewer expenses and thus can pay out a higher rate of interest to their customers.
This interest is puny as interest rates are barely above their all-time lows. Right now, you can get 1.05% interest on your money per year in a Goldman Sachs online savings account. While this is puny, this is amongst the highest yield rates and you have the ability to remove funds from the account whenever you choose.
Certificate of Deposit
A CD is a promissory note issued by a bank or a financial institution. The length of the CD is agreed upon as well as the nominal interest rate at the time the CD is purchased.
Right now again at Goldman Sachs, you can buy a one-year certificate of deposit and earn 1.20% on your money. This is only 15 basis points more than the online savings account offered by the same institution, the only difference being in a CD there are penalties for early withdrawal. Guess that’s worth 15 basis points to Goldman.
We can also purchase bonds to “save” our money for the futures. Bonds are a little different animal as they usually tie up your money for longer periods of time. Right now the 30 Year Treasury Bond yields 3.11%. This means if we buy one of these bonds, we will get 3.11% a year in yield for loaning the government our money and receive the principal back 30 years from now.
30 years is a long time to have money tied up and at 3.11% you will not even double your money in that 30 years. The thing that makes bonds different than a CD is that you can sell your bonds at any time for fair market value and not pay a penalty for doing so.
Yes! Investing is a savings vehicle. Most people think about savings accounts, CD’s, and bonds as savings vehicles and not investing, but investing sure as hell is! We invest for the future. This is not different than saving for the future!
Which of the Following is a Type of Savings Vehicle?
A) Savings Accounts?
B) Certificates of Deposit?
E) All of the above?
If you do not answer E, please read this again. All of the above are savings vehicles and all have different risk/rewards to them! Want something less risky? Open an online savings account! Want to maybe make a little more than 1% on your money? Invest the smart way!
Which of the following is a type of savings vehicle? Anything that can grow your money! Just be smart about it 🙂