Guest Author - Lili Pintea-Reed
People write and ask all the time if they should try and save money while digging themselves out of debt. My answer to this is usually YES. I have several reasons for thinking this.
1) The first is that you need to have some emergency money for when unexpected life events happen. If you need to fix the car, or go to the dentist, or your kid breaks his glasses and needs a new pair it helps to have something saved. Then you are not in the "financial crisis mode" again calling the landlord and utility companies to make partial payments while using household expense money to pay the emergency.
2) Savings does pay a small interest (remember the days when even a kiddy account paid 5 percent..sigh). So while you save, your money does increase in value.
For example, long ago my during the dot.com boom my husband worked for several computer tech companies. I made --well I still make-- a small amount of money freelance writing. Since my money wasn't needed for our monthly household budget, I saved it. It was only several hundred dollars, but emergencies happen. In one month all four of the dot.comma companies my hubby worked for went out of business. My "little savings" paid out bills for the month while we both got other jobs. Things like this happen all the time, so anyone needs to be prepared for these events. There is no job security in the this modern world.
But back to savings. The highest interest rates at most banks are in something called a Certificate of Deposit, or CD for short. These are not music disks. They are high interest savings accounts. But there is a catch. Well, several catches. You put the money in for a fixed rate of time and pay a penalty for early withdrawal if you have a financial emergency. Second you must usually pay a fixed amount to start one usually $1,000. I fund one exception to the $1,000 minimum at HSBC.com called a CD Builder Plan. You can start it with just $250 and add another $250 chunk later to make the even $500. (Thank you Pat, Colleen , and Brenda at HSBC for this info!) could be a great way to get started in long term savings.
Obviously, a CD is where you put money for long term plans like buying a car, doing major repairs, or buying a home. This would be something you plan for in the future. This not where you want to put your Emergency Money.
Cd Rates vary from week to week, s to get the best rate if you have a savings for long term planning you need to check a Bank Rate Comparison site like www.bankrate.com<>
On the day I wrote this article the best rates for $1000 one year accounts were at:
1) www.firstfed.com at 4.75 percent
2) www.ing.com at 4.35 percent
But like I said, these things change week to week, so check a Rate Comparison Site please.
Now for Saving for Emergencies the best thing is a High Interest Savings plan with no fees or penalties. I hunted around and found one that actually pays better than many CD rates.
As I write this article HSBC has an Online Saving Plan that pays 4.25 percent which is higher than many banks pay for a CD! I was stunned.
HSBC Online Savings Account at 4.25 percent
http://www.us.hsbc.com/1/2/3/personal/savings?code=husa
If you need an emergency savings plan this one or one like it offered by your local bank is the way to go.It has high interest, no fees, and is accessible without penalty in emergencies.
So lets recap. People need to save even when getting out of debt. Emergency money needs to go into an account you can access without penalty. Long term money should be saved at the highest interest possible --like in a Certificate of Deposit (CD). Happy saving. You'll be glad you did!
For more ideas Check out these Frugal Living Books!
Complete Tightwad Gazzette
The Complete Tightwad Gazzette
