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Most people are familiar with the types of savings accounts in the United States, but with the value of a dollar falling and countless banks merging, it’s not a bad idea to consider foreign savings methods.
A regular savings account is the most common and is the easiest to understand. Opening an account requires a small amount of money, usually $25 to $50 and there are no minimum balance requirements after making the initial deposit.
While basic savings accounts are convenient, you may be limited on the numbers of withdrawals you can make each month before incurring a fee. Anyone looking for a higher rate of return should be aware that regular savings accounts have low interest rates, so if you want to make money on interest, you should look elsewhere.
Money market accounts are also quite popular in the United States. You receive a higher interest rate than with regular savings, but you are required to keep a minimum monthly balance in order to earn that interest. Most money market accounts require you to keep at least $2,500 or so in the account, although that amount will vary from bank to bank. You may encounter monthly maintenance fees, depending on the bank’s policies.
A certificate of deposit (CD) is different than most savings accounts because you are required to keep your money invested for a given length of time. If you decide to withdraw your money from the CD prior to the maturation date, you will incur a penalty. CDs often have fixed interest rates that are higher than other types of savings accounts. They are also pretty straightforward, so you don’t have to understand how investing works to make money easily.
Individual retirement accounts are also popular in the United States, although you have a few IRAs to choose from. A Roth IRA is an account that has no tax impact and withdrawals are typically tax-free because contributions are solely made with taxed assets. Traditional IRAs are tax-deductible but withdrawals at retirement age will be taxed as income. Other types of IRAs include the SEP IRA, the Simple IRA and the Self-Directed IRA. All of these differ on tax policies and contribution limits.
In the UK, a cash isa is quite popular. This is an individual savings account that has special tax advantages. Unlike other savings accounts, you do not have to pay any income tax on the interest you earn in your ISA.
A Cash ISA has a cap so you can only contribute the specified annual amounts, but you can move your balance into a new Cash ISA if you find better, competitive interest rates. One of the benefits of investing in a Cash ISA is that you can transfer previously invested money without losing that money’s tax-free status. Choose an ISA that allows you to make such transfers before opening an account.
Anyone who pays income tax should look into savings options that offer tax-free benefits. Although there are limits on the amounts of savings you can contribute annually, tax-free money is an ideal way to save.