Getting Started: Savings and Investment Vehichles

Short-Term Savings Vehicles

Savings account: Often the first banking product people use, savings accounts earn a small amount in interest (anywhere from 2.0% to 4.0%, often less), making them a little better than that dusty piggy bank on the dresser.

Money market funds: Money market funds are a specialized type of mutual fund that invests in extremely short-term bonds. Unlike most mutual funds, shares in a money market fund are designed to be worth $1 at all times. Money market funds usually pay better interest rates than a conventional savings account, but below what you could get in certificates of deposit.

Certificate of deposit (CD): This is a specialized deposit you make at a bank or other financial institution. The interest rate on CDs is usually about the same as that of short- or intermediate-term bonds, depending on the duration of the CD. Interest is paid at regular intervals until the CD matures, at which point you get the money you originally deposited plus the accumulated interest payments. CDs offered by banks are usually insured.