When people are looking for places to save or invest, they will look for something that has low risk, but has a high rate of return. Unfortunately, these types of investments really do not exist. To have safety, an individual must sacrifice return; for a higher potential return, he or she must sacrifice safety. Some money can be used to take the risk and get that higher return, however, there are many options that a person can use to store up money with little or no risk and still get some sort of a return.
High Yield Savings
Many companies will offer an online-only version of their savings accounts. In order to get a better interest rate, the individual foregoes paper statements and does all their banking online. This will save the company costs, and they pass those savings along to their customers. Another catch is that savings and money market accounts are subject to what is called Regulation D. This federal regulation limits withdrawals from these accounts to 6 per month. If the customer is going over that many the institution usually imposes a fee in order to encourage the customer to switch to a checking account, which might be more suitable to their needs.
Money Market Account
Money markets are very similar to high yield savings. Money market will generally offer a better interest rate than traditional savings; however, since the advent of a high yield savings, the money market often does not offer the best interest rates anymore. What these account do offer is monthly paper statements, some have check writing abilities, and can sometimes be set up in person. Banking does not have to be done entirely online. Money market accounts should not be confused with money market funds, and they are still subject to regulation D.
A traditional savings account can be opened at just about any bank or credit union across the country. The minimums are usually pretty low, and nothing needs to be done online if the customer does not want to use online banking (however it is still available). The interest rates are often fairly low, but the customer gets more personalized service. While these accounts are still subject to regulation D, a withdrawal in person does not count against their limit of 6 per month.
High Yield Checking
Most people know what checking accounts are. They are easy to open, often come with no fees, and most do not pay interest. What many may not know is that there are high yield alternatives. While these accounts generally do not have yields as high as money markets or high yield savings, they do offer something. The catch is that there are a number of stipulations. The account may only pay interest on the first few thousand in the account, the account holder often needs to make a certain number of transactions per month with their debit card, and the institution generally requires an automatic deposit of their paycheck. For those who need a checking account and are using all these services anyways, they might as well earn some interest on their money. Checking accounts are not subject to regulation D.
There are many places a person can store up safe money. For high liquidity and safety, these are a few of the options. As with all savings, making sure they are covered by FDIC or NCUSIF will give the depositor peace of mind. To avoid the penalties associated with Regulation D, treat a savings as a savings. If more than a few withdrawals are needed, then more needs to go to a checking account and less to the savings.