| Where you put your money depends on a multitude of | | | | mutual fund that buys short-term securities like |
| circumstances related to your own individual needs | | | | Treasury securities, high-quality bank certificates of |
| and desires as well as the state of the economy. | | | | deposit, etc. These are considered safe (some buy |
| Regardless of your savings and investment choices, | | | | only U.S Government securities), and you can write an |
| you face three kinds of risk: interest rate risk (value of | | | | unlimited number of checks on the fund. Advantages: |
| your investment changes as interest rates rise and | | | | Higher short-term returns than with bank |
| fall); inflation risk (inflation diminishes the return on your | | | | money-market accounts; liquid; diverse investments. |
| investment); price risk (the actual value of your | | | | Disadvantages: Don't have federal deposit insurance; |
| investment may go down). | | | | management fees. |
| Listed below are a few savings and investment | | | | Certificates of Deposit (CDs) - You deposit money |
| options and a brief description: | | | | (usually in a bank, savings-and-loan, or credit union) for |
| Passbook Accounts - Most of us are introduced to | | | | a specified period at a specified interest rate. Your |
| the world of finance with a passbook savings account | | | | principal never fluctuates. Advantages: Interest rates |
| from our local bank. Advantages: No risk; federally | | | | usually higher than money-market accounts or |
| insured; convenient. Disadvantages: Low interest rates; | | | | passbook accounts; federally insured. Disadvantages: |
| possible fees for low balances. | | | | Penalty for early withdrawal. |
| Bank Money-Market Accounts - These accounts pay | | | | U.S Treasury Bills - You loan money to U.S. |
| a variable rate of interest and the banks set the rates. | | | | Government when you buy a Treasury bill - or the |
| There can be a rule on how much you have to | | | | other two Treasury securities listed below (Treasury |
| withdraw at one time and how many withdrawals you | | | | notes, Treasury bonds). Treasury bills are short-term |
| can make by check per month. Advantage: In | | | | obligations that mature in three months, six months, or |
| high-interest periods, it usually pays more than | | | | a year. They do not have a stated interest rate; you |
| passbook accounts; easy to open; convenient access; | | | | buy them at a discounted rate and your profit (interest) |
| federally insured; combined bank balances (checking | | | | is the difference between what you pay and the face |
| plus passbook plus money market) may get you a | | | | value when the T-bill matures. Minimum investment is |
| free checking account. Disadvantages: In low | | | | $10,000. Advantages: Extremely safe; short maturities; |
| interest-rate periods, it pays about the same as a | | | | exempt from state and local taxes; can buy directly |
| passbook account; monthly fees if your account falls | | | | from a Federal Reserve Bank. Disadvantages: High |
| below the required minimum balance. | | | | minimum investment; no interest payments; interest |
| Mutual Fund Money-Market Accounts - In this case | | | | rates are usually lower than with longer-term |
| money is pooled by a number of investors into a | | | | investments. |