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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

CDs are better for savers who don't have to have immediate access to their money or have it earmarked for an event that has a specific date attached, such as a wedding, tuition payment deadline, imminent retirement, or even a holiday or vacation. Reason: You know going in that, until a certain date, you're probably not going to need that money. In return, the bank gives you a better rate.

One smart CD saver trick: Laddering. If you want to invest money in CDs, stagger the time periods you deposit the money for, so that you've always got one maturing. If you want to buy them all at once, simply buy CDs that mature at different times. That way, you've made it slightly easier to access your money if you find a better deal or just need the cash.

Like money market mutual funds, CDs can also be placed into tax-deferred accounts for education and retirement. Investors also use CDs as a parking place for money before or after investment.

Relatively new are indexed CDs, which offer a rate of return based on the performance of a specific index fund. "It's for someone who is interested in return, but in general the money is tied up for a longer period," says Keith Leggett, senior economist for the American Bankers Association. And unlike the actual stock market, the principal is federally insured and guaranteed.

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 no no no liberal
minimal usually 0 yes no no complete
$500 - $5,000 often yes 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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