Saving with Children – Savings Accounts vs. CD’s

 

Long-term vs. Emergency Savings

Yes, it’s official. Having children not only often changes your choices in automobiles, vacation venues, the advisability of cream-colored furniture and acceptable dinner entrees — pizza notwithstanding — it can also influence the means by which you choose to save money. Despite the expenses of raising a family, saving money is paramount to your family’s security. It not only helps you achieve long-term goals such as college or retirement, but also serves as a sort of cushion against unexpected emergency expenses. Because these two types of savings are designed to serve entirely different purposes, it makes sense to consider different types of savings instruments to reach your personal goals and your family’s needs.

Savings Accounts 101

Standard savings accounts are among the most convenient ways to save money. Savings account options typically include Passbook Savings or Statement Savings. For children, Passbook Savings is a visual way to demonstrate the banking process of how money deposited ‘into the passbook’ earn interest monthly. The child will see their balance increase each time a deposit is made and any earned interest added to the balance will be reflected in their passbook. If a parent prefers to teach their child a more contemporary, electronic banking approach, a statement savings account is the best solution. This account type enables the parents and grandparents to electronically transfer money into the child’s account without visiting a bank branch. Accounts can be viewed online and the savings process could be taught to the child in the same way they interact with other electronic devices. Deposits can be made electronically directly into a statement savings account and/or reoccurring deposits can be scheduled simply by logging into your free Belmont Savings online banking service. These electronic options are not available on Passbook accounts as the passbook must be physically presented for each transaction.

The full amount of your savings account balance is available to you at any time without penalties or fees and your savings balance is insured by the FDIC up to $250,000 per account. At Belmont Savings, we offer additional unlimited insurance coverage through Depositors Insurance Fund (DIF) so that every dollar over the FDIC maximum is insured at no cost to the customer. While savings accounts are the safest and most convenient form of saving money, savings accounts accordingly pay the lowest interest rates on the money kept deposited in them. At Belmont Savings, we offer our customers many different personal savings account options at various rates and terms. Requirements, such as minimum opening balances, vary by account but many can be opened with as little as $10.  For assistance, please contact a banker at 617.484.6700 during business hours or visit one of our five

convenient branches located in Belmont, Watertown and Waltham (located inside Shaw’s Supermarket). Our banking experts will gladly help you with all your banking needs.

CDs 101

Certificates of deposit, or CDs, offer the same degree of prudence and security as do savings accounts while offering a higher interest rate on the amount used to “purchase” the CD. The drawbacks to CDs include much higher minimum amounts to begin such as program. For instance, most passbook savings accounts require a minimum of $10 to open while most CDs require a minimum deposit of $5,000, according to VisualEconomics.com. CDs are purchased for varying terms to reach maturity, ranging from three months to five years. In general, the longer the amount required for the CD to mature, the higher the amount of interest paid on the account. Finally, because CDs are purchased for a required time to reach maturity, there are significant penalties associated with cashing one in prior to maturity and a net loss is probable. For a minimum deposit of $500, Belmont Savings Bank offers certificates ofranging from just 31 days to up to five years in duration, making this option a much safer one for consumers unaccustomed to CDs.

Different Choices for Different Uses

Everyday passbook savings should be your first choice if you are just beginning a savings program. Depending upon the amount of money you want to be readily and immediately available in the event of an emergency, you can begin to consider CD options once you have reached your emergency fund goal. You might, for example, decide to purchase a 31-day CD from Belmont as soon as you have accrued $500 over your emergency fund balance. Experts recommend that you stagger the due dates of your CD investments in the event that you do require the money or interest rates begin to rise again. Talk to your Belmont Savings Account Manager for more information and recommendations.

Member FDIC. Member DIF.