Must read! Best places to put your savings

Money that is considered savings is often put into a low risk, interest-earning account, rather than into higher risk investments. Although there is opportunity for larger returns with certain investments, the idea behind savings is to allow the money grow slowly with little or no associated risk.
The advent of online banking has increased the variety and accessibility of savings accounts and vehicles. Here are some of the different types of accounts so you can make the most of your savings.

Savings Accounts

Savings accounts are offered by banks and credit unions. The money in a savings account is insured by the Federal Deposit Insurance Corporation (FDIC) up to specified limits. Certain restrictions may apply to savings accounts; for example, a service fee may be charged if more than the permitted number of monthly transactions occurs.

Money in a savings account typically cannot be accessed through check-writing or ATMs. Interest rates for savings accounts are characteristically low; however, online banking does provide higher-yielding savings accounts.

High-yield Bank Accounts

High-yield bank accounts are a type of savings account, complete with FDIC protection, which earns a higher interest rate than a standard savings account. The reason it earns more money is that it usually requires a larger initial deposit and the access to the account is limited. Many banks offer this account type to valued customers who already have other accounts with the bank. Online high-yield bank accounts are available, but you will need to set up transfers from another bank to deposit or withdraw funds from the online bank.

Certificates of Deposit (CDs)

Certificate of Deposits (CDs) are available through most banks and credit unions. Like savings accounts, CDs are FDIC insured, but they generally offer a higher interest rate, especially with larger and/or longer deposits. The catch with a CD is that you will have to keep the money in the CD for a specified amount of time; otherwise, a penalty, such as three months’ interest, will be assessed.

Popular CD maturity periods are six-month, one-year and five-year. Any earned interest can be added to the CD if and when the CD matures and is renewed. (A CD ladder allows you to stagger your investments and take advantage of higher interest rates. Learn how in Save Smart with A CD Ladder.)

Money Market Funds

A money market fund is a type of mutual fund that invests only in low-risk securities. As a result, money market funds are considered one of the lowest risk types of funds. Money market funds typically provide a return similar to short-term interest rates.

Mutual funds, brokerage firms and many banks offer money market funds. Interest rates are not guaranteed so a bit of research can help find a money market fund that has a history of good performance.

Money market deposit accounts are offered by banks, and typically require a minimum initial deposit and balance, with a limited number of monthly transactions. Unlike money market funds, money market deposit accounts are FDIC insured. Penalties may be assessed if the required minimum balance is not maintained or if the maximum number of monthly transactions is surpassed. The accounts typically offer lower interest rates than CDs, but the cash is more accessible. (Learn more about liquidity in Diving into Financial Liquidity.)

Treasury Bills

This is a type of government securities issued on behalf of the Federal Government by Central Bank of Nigeria (CBN) to control money supply in the economy. But unlike other government securities such as FGN Bonds, Federal Government development stocks, which are long term in nature, TBs are short term securities issued at a discount for a tenor ranging from 91 to 364 days, which yields no interest.

How does the discount work?

If you buy T-bills worth of N500,000 at 10 per cent discount rate, CBN will debit your account with N450,000, leaving a balance of N50,000.

“This means that your interest of N50,000 has been paid to you upfront. When your investment matures, you are still paid your N500,000.This shows that you were actually paid N550,000 for your investment of N500,000,” says praticalbusinessideas.com.

Bonds

A bond is a low-risk debt investment, similar to an IOU, which is issued by companies, states and governments to fund projects. When you purchase a bond, you are lending money to one of these entities (known as the issuer). In exchange for the “loan”, the bond issuer pays interest for the life of the bond, and returns the face value of the bond at maturity. Bonds are issued for a specific period at a fixed interest rate.