Financial Education
Investments
Liquid Savings
With many expenses on the horizon, such as buying a car, funding a trip abroad, or purchasing books and supplies for school, it is often smart to keep your savings very liquid (accessible) during your time in college. The following describe three commonly used accounts for maintaining easy access to money.
Savings Accounts
- Little to no risk
- Earn interest (although often very low)
- Typically have a minimum balance requirement of around $200
- Can be maintained online or face-to-face at your bank
- FDIC insured up to $100,000
Money Market Accounts (MMAs)
- Little to no risk
- Earn more than savings accounts (typically double the interest)
- Typically have a minimum balance requirement, sometimes as high as $3,000
- Some are FDIC insured up to $100,000
- Offer high-yield accounts online
Money Market Funds (MMFs)
- Very low risk
- Not FDIC insured
- Earn higher interest than MMAs
- Often have fees associated with withdrawals
- Fees are also included to cover the cost of fund management
- These types of accounts are commonly used by people with brokerage accounts, but can be used to meet short-term goals/build emergency funds
Certificates of Deposit (CDs)
CDs typically earn higher rates than liquid savings, but you must be willing to put your money away for a longer period of time (i.e. 6 months to 3 years) in order to earn this income. For this reason, CDs may not be an optimal investment during your college years.
CDs are “hands-off” investments until the CD matures and are FDIC insured up to $100,000. Although you may withdraw funds before the maturity date, you will typically pay a high penalty for doing so. Always comparison shop for interest rates to be sure you’re earning the highest rate possible before stashing your money away in a CD.
Bonds
A bond is an interest-bearing certificate issued by a government or business promising to pay the holder a specified sum on a specified date.
Click here if you’d like to learn more about investing in bonds.
Thinking about Retirement
I know retirement seems like a long way off, but thinking about it early-on in your professional career will pay off big time down the road. There are two things you must keep in mind about saving for your retirement:
Consider this example:
Joe and Bob start working at the same company at age 25. Joe begins saving for retirement immediately and puts away $1,000 per year for 10 years. At age 35, he stops putting money away.
Bob, on the other hand, decides that he has too many other things to spend his money on early in his career and waits until he’s 35 to begin saving for retirement. At age 35, he begins to set aside $1,000 per year and does this until he retires at age 65.
When Joe and Bob are 65, who will have more in retirement savings (assumed: 8% return)???
The answer is: JOE (Joe’s savings = $170K, Bob’s = $133K)
Although Joe has only invested $10,000 of his own money compared to the $30,000 invested by Bob, Joe started earlier and the power of compound interest was on his side.
Time is on your side!
As illustrated in the early example, the more you can help your money build on itself, the better. Get in the habit of setting aside money on a monthly basis. As the saying goes, pay yourself first! If your employer does not offer a retirement investment program, seek out opportunities on your own such as IRAs.
Recommended Web Resources for Learning about Investing
Motley Fool
Bankrate
Yahoo Finance
Kiplinger Personal Finance
AOL Money & Finance
Recommended Reading on Investing
Rich Dad, Poor Dad
By Robert T. Kiyosaki
A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing
By Burton G. Malkiel
Money Magazine
Kiplinger Personal Finance Magazine
The Wall Street Journal
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