You’ve done it—you’ve earned some money, and you’re ready to take it out of the coffee can on top of your fridge and deposit it in some kind of account at your chosen financial institution. The question now is, what kind of account?
You’re going to want to shop around to compare interest rates (typically the higher the better), fees (typically the lower the better), and fine print. It doesn’t have to be as scary as it sounds, and we’ve put together this primer to help you get started.
Before we dig in, here are a few helpful terms to know:
Liquidity is the access you have to your money while it lives in your account. Federal regulations mean that money deposited can only be accessed by in-person withdrawals, online transactions, check-writing, and ATM visits so many times per month, depending on the account.
APY is an acronym for “annual percentage yield,” which is basically a fancy way to say the interest your account will earn over the course of a year as it compounds. This may or may not be fixed for the time your money is in the account (and it’s important that you know which it is!).
Term or duration is an element of a certificate of deposit (CD). In this option, money typically remains in the bank for a “maturation period,” also called the term or duration. The length of this factor is significant when choosing the account that most aligns with your needs.
How best to deposit your money hinges on your situation today as much as what you expect your circumstances to be tomorrow. Here are some scenarios to help you think through your circumstances.
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