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Savings Guide 2006

Savvy savers

  There's more to saving than stuffing your extra cash in a mattress.
Savings: The next big thing
Money market accounts 529 accounts
Christmas/vacation clubs Savings bonds
Money market mutual funds Treasuries

Who it's for

Money market accounts represent the next step up from the traditional savings account. Accounts sometimes require a little more cash to open than a savings account and may have a (higher) minimum balance, but many also offer a higher rate of return. The likely account holder will have a little more money accumulated and probably be a little more financially savvy.

Money market accounts are "usually better for people who are looking for some return, but want liquidity," says Keith Leggett, senior economist for the American Bankers Association. But the account holder needs to be the type who can manage and balance a check book, he says.

Once you've accumulated those three to six-months' worth of expenses in a rainy day fund, you'll have enough to move it to a money market account. Watch out for required minimum balances -- can you access enough funds in an emergency without taking it below the minimum?

Because check-writing is usually limited, this is a good option for paying those one-time expenses -- such as writing a check for a down payment on a car or home -- rather than a couple of trips to the grocery store.

It's also a good parking spot for money you've taken out of investments or cash you're preparing to invest.

Trying to figure out which options best match your savings strategy? Here are several key points to compare and contrast at a glance.

minimal usually none yes no no complete
$1,000 - $50,000 yes yes no no liberal
minimal usually 0 yes no no complete
$500 - $5,000 often no no yes partial
$500 - $5,000 usually yes no no with penalty
minimal usually 0 no yes yes highly restricted
approx $25 yes yes no no restricted
minimum $1,000 yes yes no no restricted

-- Posted: Oct. 1, 2006

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