Steps to Financial Stability in 2010: Know your investment options

Investing no longer means having to wait until one reaches a large sum of money. Changes in financial services have created a wide choice of savings alternatives. These alternatives are very simple to maintain and can directly yield positive earnings. The many types of savings plans can be grouped into these main categories: savings accounts, certificates of deposit, money market accounts and Individual Retirement accounts.

Regular savings accounts, traditionally called passbook accounts, usually involve a low or no minimum balance. Today, instead of a passbook showing deposits and withdrawals, savers receive a monthly or quarterly statement with a summary of transactions. Credit unions, savings and loan associations and banks offer regular savings accounts. At a credit union, these savings accounts are called share accounts.

A certificate of deposit (CD) is a savings plan requiring that a certain amount be left on deposit for a stated time period (ranging from 30 days to five or more years) to earn a specific rate of return. These time deposits can be attractive and a safe savings alternative. However, most financial institutions impose a penalty for early withdrawal of CD funds.

A Money market account is a type of savings account. Money market accounts are also referred to as “interest-bearing” checking accounts. Traditional money market accounts usually pay higher interest rates and often require higher minimum balance in order to gain these interest rates. Another difference is the number of checks one can write off a money market accounts; often the standard limit is three to six checks per month.

Individual Retirement accounts, also referred to as IRAs, are retirement plan accounts that provide some tax advantages for retirement savings. The two main IRAs are the Roth IRA and the Traditional IRA.

• Roth IRAs contributions are made with after-tax assets, all transactions within the IRA have no tax impact, and withdrawals are usually tax-free.
  
• Traditional IRAs contributions are often tax-deductible (often simplified as "money is deposited before tax" or "contributions are made with pre-tax assets"), all transactions and earnings within the IRA have no tax impact and withdrawals at retirement are taxed as income (except for those portions of the withdrawal corresponding to contributions that were not deducted).

As helpful hint to the consumer, it is always best research your options when considering simple investments. Often times, you can call the credit union and see what they have to offer and what the interest rates are earning. When considering tax incentive based products, seek the advice of a tax professional to see what meets your needs.

Check back next week for tips on saving money in order to start investing.