Safe havens: Savings accounts

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Safety is the name of the game when it comes to your savings. The last thing you want when trying to build a savings cushion is to lose it all and return to square one.

Fortunately, you can stash savings in a number of safe financial instruments that also reward your efforts with a little free money in the form of interest.

While they aren’t going to set the world on fire with sky-high returns, the following investments each provide a safe place to park your savings:

Places to park your cash

Savings accounts

  • What they are: Savings accounts are basic interest-paying deposit accounts.
  • Risk: Savings accounts are insured by the Federal Deposit Insurance Corp. or the National Credit Union Administration (for credit unions), meaning they can’t lose principal on account balances of $250,000 or less through Dec. 31, 2013. On Jan. 1, 2014, the standard insurance amount is scheduled to return to $100,000.
  • Liquidity: High liquidity is the principal advantage savings accounts have over certificates of deposit. Under the Federal Reserve’s Regulation D, account holders may make up to six withdrawals or transfers from a savings account each month. Banks may impose fees for exceeding an arbitrary limit for withdrawals, or for failing to meet a minimum account balance in a given month. However, savings accounts remain one of the most liquid interest-bearing vehicles.
  • Pros and cons: On the plus side, savings accounts offer high liquidity at low risk.As with other deposit products, the main risk for holders of savings accounts is that their money will diminish in purchasing power as inflation takes its toll. This is especially true of traditional passbook savings accounts, which often sport a yield that falls far short of other savings vehicles, such as CDs.

    Higher yields sometimes can be found online or in high-interest savings products offered by credit unions and larger banks. Still, unlike CDs, yield on savings accounts can change quickly and without notice.

  • Where to find them: Banks, credit unions and other institutions offer savings accounts. Bankrate can help you find the best savings rates currently available.