A Few Choices For Better Interest Rates Than A Savings Account
All year round the Federal Reserve makes adjustments to its lending rates to commercial banks, which in turn has an impact on the rates a commercial bank offers its customers. When the economy does poorly, for example during the bubble bursting of the dot com era and the 2007 real estate debacle, the Federal Reserve lowered the rates severely to stave off a recessionary economy. This was a positive state for companies and small businesses that need to borrow money to survive, but was a negative for people who were net savers.
The view point of many frugal savers was that the lower interest rates were a form of economic disincentive to saving. Everywhere he or she turned, options for stashing one's money meant poor interest rates of less than 1%. This was the case at many of largest banking entities that had operations sprawled across state lines, and also the case for even small community banks. However, a little extra effort reveals that some interest rate gems in low risk investments yet remain.
Interestingly, some small-town banks are able to offer higher interest rates than the big banks. This may seem paradoxical except for the fact that the high interest rates are usually tied to restrictive conditions. Therefore, if a customer is willing to put up with such restrictions he or she may be able to take advantage of high rates.
For example, the banking client will often have to set up direct deposit for the monthly paycheck with the small bank guaranteeing them a steady stream of increasing deposits. Moreover, the small bank might demand that the client use the ATM card as a check card for transaction purposes which increases the fees the bank can collect from businesses.
Another option for those who are braver is the internet bank. The internet banking industry exploded in the late 90s and early 2000s. Some of them were offshoots of brick-and-mortars and others were truly internet only. Since such banks have lower operating costs they can afford to offer customers better interest rates on regular checking and savings accounts.
A third possibility is for one to turn to a money market account at either a bank or a traditional financial firm. A money market account offers slightly higher interest rates with very low risk. In addition it is insured in the same way as checking and savings accounts by the FDIC. Withdrawals can be made but are usually limited to some number within a 6 month period to comply with SEC definitions and regulations.
There are options for savers even when economic conditions engender a period of low interest rates. The above three possibilities are but a sampling of the possibilities. A dedicated saver is advised to learn more about them and other strategies including short term bonds and high yield mutual funds.
Article Source: FxTradingStock.com
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This and related topics on what are high yield mutual funds are available to all. The site discusses how to choose low risk investments.
by: Leo Antonopolous
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Date: Sun, 6 Jun 2010
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