Some financial decisions are harder than others. Should you apply for a 15-year or 30-year fixed-rate mortgage loan? Should you purchase a new car or a used one? Will going back to school in your 40s bring you a high enough salary to offset the high cost of a college education? Some decisions, though, require a bit less analysis. Choosing between a savings account or a money market account is one of these. The reason? Despite the different names, there is little difference between money market and savings accounts. The Accounts You probably know what a savings account is. It is a safe place in which to hold your money. Your bank or credit union will pay you interest on the money in your account — though the interest rate on savings accounts is typically rather low. The Federal Deposit Insurance Corporation or National Credit Union Association insures savings account, up to certain amounts, so that you will not lose your dollars even if your bank or credit union falls into financial ruin. A money market account is a surprisingly similar economic tool. It, like a savings account, is a safe place to store your money. Also, like a savings account, your dollars are protected. There are a few minor differences, however. Money Market Accounts Money market accounts usually require consumers to maintain a higher minimum balance. Money market accounts might also be more flexible, allowing you to write checks — and quickly access the money in your account — against the dollars you’ve deposited in them. The primary benefit of a money market account? They typically pay out higher interest rates on the money you’ve saved. Traditional savings accounts usually require that you maintain a lower minimum balance. Also, savings accounts do not come with any checking options. You cannot write checks against the balance in your bank savings account. Finally, savings accounts pay a lower amount of interest. Does it Matter? The truth, though, is that for most consumers, the difference between savings accounts and money market accounts do not matter too much. The main difference between the two is the higher interest rates that come with a money market account. However, rates on these accounts are still fairly low when compared to other investment vehicles. This means that you’d need to invest a lot of dollars in your money market account to generate an appreciable amount of interest. Who is a good candidate for a money market account? Someone who has a lot of money to deposit and who would prefer the flexibility to write checks against their savings. However, in reality, the decision to go with a traditional savings account or a money market account will not make too much of a difference in your financial health.

Savings vs. Money Market Accounts

View Resource Savings vs. Money Market Accounts
If you have a low credit score and are currently unemployed, you might struggle to qualify for a checking account at your local bank. You might also find that you cannot qualify for any of those credit-card offers that keep filling your mailbox. You do have the option, though if you do not want to carry large amounts of cash with you at all times: prepaid debit and credit cards. These cards, which you load with funds, allow you to make purchases, both online and offline. You can use them, too, to withdraw money from ATMs. However, you need to be careful. Be aware that some prepaid cards come with potentially pricey fees. The Benefits of Prepaid Cards Prepaid cards do not appeal to everyone. However, if you have a limited or weak credit history and you have struggled to hold down a full-time job, such cards might work for you. That is because you will not have to submit to a credit check or a review of your employment history to acquire one. There’s a reason for this: You are directly providing the funds for your prepaid card with your money. Say you deposited $1,000 on a prepaid card. You now have a balance limit of $1,000. You cannot spend more than that, though you can increase your prepaid card’s balance whenever you’d like. Another advantage? These cards are easy to get, and you can qualify for them quickly. In fact, you can usually purchase prepaid cards in minutes online. Once you load the cards with money, you are free to start using them. Most merchants are not shy about accepting prepaid cards. You’ll find that most stores, restaurants, gas stations and supermarkets will accept your prepaid card. You can also use your prepaid cards at ATMs to withdraw quick cash when you need paper money. Finally, if you have a history of running up big credit-card bills or emptying your checking accounts, prepaid cards offer protection. Because your purchasing power is limited to the amount of money on your card, you cannot overspend. Beware of Fees This does not mean, though that prepaid cards are perfect. Many do come with a big drawback: high fees. Some providers of prepaid cards, for instance, will charge you a fee — often as high as $4 — when you use your prepaid card at certain ATMs. Others might charge you a small fee for every transaction you make with your prepaid debit or credit card. These can add up. Other providers of these cards will charge you if you try to withdraw more money than what you currently have in your account. If you do not keep careful track of your spending, you will run the risk of incurring this often costly fee. If you are aware of the fees, though, and you take the steps necessary to avoid them, you might find that prepaid cards are the right option for you. If you use these cards wisely, you might even boost your financial health enough to qualify for traditional credit cards again.

The Benefits of Prepaid Cards

View Resource The Benefits of Prepaid Cards
Looking for a safe place to invest your dollars, an investment vehicle with a guaranteed rate of return? A bank-issued certificate of deposit — usually known as a CD — might be a good choice. Credit unions might also refer to them as certificate accounts. Be aware that CDs, despite their safe nature, are not perfect investment vehicles. You’ll tie up your money for a potentially long time. Also, the rate of return might not be as high as it could be with other investments. Here are some factors to consider before investing in a CD: What They Are Banks and credit unions typically offer CDs or certificate accounts as low-risk investments. However, when you invest in low-risk investments, your rate of return is often lower, and that is often the case with these types of accounts. If you are interested in investing in a CD, you can simply walk into a bank or credit union and deposit your funds into one. You can also purchase a CD through a broker. CDs are typically available covering differing periods of time. One CD might require that you keep your dollars invested for three months. Another might require that you keep them invested for a year or more. If you withdraw your money before this period ends, you’ll face withdrawal penalties. Make sure, then, that you can keep the money you place in a CD for as long as your financial institution requires. When you invest in a CD, you’ll receive a guaranteed interest rate. This rate is usually higher than the rate offered on traditional savings or checking accounts or with money market accounts. However, CDs still offer a relatively low rate of return when compared to investment vehicles such as IRAs. Once your CD reaches its end date — known as maturing — you’ll receive your original deposit back along with the interest that this deposit generated. Remember that interest earned on a CD are taxable income. The Advantages of a CD The main advantage of a CD is the stable nature of the investment. Deposits in a CD are insured, so even if your bank or credit union falls into financial ruin, you will not lose the money you’ve invested. You also know up front the interest rate on your CD. This means that your rate of return is guaranteed. There won’t be any unpleasant surprises — or any surprises at all — once your CD matures. The Disadvantages of a CD CDs, though safe, are not perfect investment vehicles. They do come with some disadvantages. First, you’ll be tying up your investment dollars for a potentially long time, as much as a year or more. You will not be able to access those dollars, whether to spend them or move them into a new investment vehicle, without paying a financial penalty. However, the potentially bigger drawback is that CDs, despite their stable nature, don’t boast exceptionally high rates of return. You will not lose money by investing in a CD, which is part of their appeal. However, you might not make as much money as you could have by investing in the stock market. Only you can determine if a CD is the right choice for you. It comes down to how much risk you are willing to tolerate when investing.

Putting Money in a Certificate of Deposit (CD) Account

View Resource Putting Money in a Certificate of Deposit (CD) Account
Trying to cut down on your credit-card bills? Don’t like to carry around large sums of cash? Then a debit card might be right for you. Debit cards, in fact, have grown in popularity over the years. That is because they are so easy to use. Consider a debit card an easy alternative to writing a check. When you go to your local grocery store, you can take out your debit card and pay the $80 for your groceries. You will not, though, have to pay that money back with interest as you would with a credit card. Instead, the dollars are taken immediately out of whatever bank account is connected to your debit card. In essence, debit cards are like plastic checks, except you will not have to take the time to write a check while you are paying for your groceries, gas, clothing or any other purchase. Usually, you’ll have to enter a PIN, your personal identification number, when you complete a debit transaction. After you swipe your debit card through a reader, you’ll be prompted to enter your PIN before the purchase is complete. This protects you in case your debit card is lost or stolen. Make sure, of course, that your debit card’s PIN is a difficult one for anyone else to guess. Don’t, for example, use your birth date or street address. Cautions Debit cards come with an obvious benefit: If you use them as an alternative to credit cards you will not be running high amounts of credit card debt and the interest that comes with it. Moreover, with a debit card you will not have to carry cash with you that can be lost or stolen. There are, however, some risks with a debit card. First, if you do not carefully track your purchases, you do run the risk of accidentally draining the account connected to your card. That could lead to expensive penalties from your bank. It might also lead to bounced checks, missed payments and late fees. So before you swipe that debit card, make sure you have enough money in your account to pay for your purchases. Also, be sure never to let your account balance get low enough so that a $25 fill-up at the local gas station puts you at risk of emptying your account. You should be careful, too, of thieves. If a criminal should gain access to your debit card — especially one that only requires a signature to complete a purchase — that thief can quickly empty your accounts. Keep an eye on your accounts for any unusual purchases. If you do suspect someone is using your card, immediately call your bank. You can also protect yourself by not using your debit card in particular dangerous places. Security experts, for example, recommend that you only use your card at ATMs located inside banks or other buildings. Thieves can easily connect machines to ATMs located outside that skim your debit card numbers as you swipe your card. What’s especially tricky about these skimming machines is that they often fit over the real card slots at ATMs. This makes them difficult to see, especially for consumers. Gas station fuel pumps are another dangerous area; security experts say. Again, the problem is often skimming. Many gas stations are busy places, with cars driving in and out and people milling about. There may also be little supervision. Because of this, criminals can easily set up a skimming machine on your favorite station’s fuel pumps. Finally, be careful using your debit card to make an online purchase. If someone steals your information online, that thieve could gain instant access to your cash. Instead, rely on your credit cards for online purchases. 

Using a Debit Card

View Resource Using a Debit Card
You know that setting up a household budget is something that you need to do. Doing so can help you prepare for your retirement, pay for your children’s college educations and make sure that you do not run up high-interest-rate credit card debt. Unfortunately, budgeting is also something few people like to do. It takes time and it requires organizational skills. That is something that many of us lack, or at least think we lack. However, here’s the good news: Creating a budget does not have to be difficult. In fact, there are three simple ways to create an accurate budget for your household. Just pick the method that works best for you and commit to it. Bring Out the Envelopes There was a time when the envelope method of budgeting was king. Today, this method feels a bit old-fashioned, what with the proliferation of online budgeting tools available. However, for many households, the envelope system works just fine. Here’s how it works: Set aside a series of empty envelopes and label each of them with a particular expense category. One envelope might read “mortgage payment.” Another might say “groceries,” while still another might say “entertainment.” When you receive your paycheck, put the appropriate amount of money — the money you’ve set aside for each expense in your monthly budget — in the right envelope. If you stick to this method, when each of your bills come due, you should have enough money in the corresponding envelope to pay it. Also, when you want to go to the movies or eat out, you can only do so if there’s enough money left in that “entertainment” envelope. This method has fallen a bit out of favor as more consumers are using their debit and credit cards to pay their bills each month. However, if this method works for you and your family, there’s no reason to abandon it. It is simple and effective, if done properly. Online Budgeting The Internet brings us the late-breaking celebrity news seconds after a star divorces or shows up on the beach 15 pounds too heavy. It lets us waste days Tweeting about what we ate for breakfast. It also gives con artists an easy way to scam people out of their hard-earned dollars. However, the Internet has given us some good things, too, such as online budgeting tools. The Web is now full of these tools, all of which let consumers enter their expenses and revenues to determine quickly where their money is going and whether they’ve breaking their budget. Some of the more popular online budgeting tools include Quicken and Mint. Both are powerful offerings that come with money management tools, financial calendars, calculators, spreadsheets and everything else you need to track your spending and earning each month. Mint and Quicken are just two options. Search the Internet for “online budgeting tools” and see what you find. The only way to find the right online budgeting tool for you and your household is to try out several. You’ll soon discover the online tool with which you feel the most comfortable. Separate Accounts You can use your bank for budgeting, too by opening separate checking or savings accounts for your various expenses. For instance, open a checking account reserved solely for your mortgage. For each paycheck you receive, deposit the right amount of money in that account. Then, each month, your mortgage payment should be ready to go. Do this with your monthly grocery allowance, an entertainment fund, insurance allotment and car payment fund. If done properly, this method works a bit like the envelope method of budgeting. Only with separate accounts, you will not have to worry about storing large amounts of cash in your home. Of course, these are just three of the many budget methods that you can employ. Be creative and experiment. You’ll soon find the budgeting strategy that works best for you. The only wrong method is not budgeting at all. That is a formula for running into debt and scrambling to pay your bills each month.

Popular Budgeting Methods

View Resource Popular Budgeting Methods
You finally committed to making a household budget, listing your monthly expenses and revenue streams. However, at the end of each month you find that you’ve overspent on going to the movies, eating out or buying clothes. It is enough to make you feel like a budgeting failure. Here’s the good news: You can fix your budget. You simply have to identify the most common reasons why budgets fail, find these common mistakes in your household budget and then correct them. Here, then, are the most common mistakes people make when crafting a budget: 1. They are unrealistic: When we sit down to make a budget, we too often do so with unrealistic hopes. We plan to spend just $50 a month on eating out, or we promise that we’ll only spend $400 a month at the grocery store. Then when the end of the month comes we discover that we spent $100 on pizza alone. At the grocery store, we ended up spending $700. The best way to avoid this mistake? Be realistic about your spending habits. If you like nothing more than catching a first-run movie on the weekend, don’t pretend that you’ll go through the entire month spending just $25 at the theater. 2. They do not plan for emergencies: Things go wrong, every month. Maybe your washing machine goes on the fritz. Maybe your dishwasher springs a leak. Maybe your dog needs an emergency visit to the vet. These emergencies require money, usually enough to break your monthly budget if you do not plan for them. Put aside a set amount of money each month for emergencies. If you do not need to spend that money? Great. However, you can bet that the following month, something will come up. 3. They forget birthdays, anniversaries and Valentine’s Day: Special occasions are not as infrequent as we sometimes think. Each month, it seems, features at least one birthday, holiday or anniversary. Buying presents and cards can eat into your monthly budget. Make sure to include a line item in your budget for these special events. 4. They give up too soon: Failure is not fun. When you reach the end of another month only to find that you’ve overspent again, it is too easy to give up on the budgeting process together. Don’t do this. Try again next month. Think of it this way: Yes, you overspent last month. However, if you did not have a budget in place, how much more would you have spent? 5. They reward themselves: It is easy to want to splurge if you receive an extra-large commission check or an unexpected bonus. However, be careful. It is easy to spend all that money on entertainment, gifts or high-end electronics. Once you’ve gone down that path, it is just as easy to continue with the habit of overspending. After all, you purchased that iPad with your bonus money. It sure would be nice to have that keyboard attachment to go with it. That purchase, though, won’t be funded by a bonus. That purchase could very well scuttle your monthly budget.

Why Budgets Fail

View Resource Why Budgets Fail
Why doesn’t your savings account grow? It could be a simple matter of how you allocate your regular paycheck. What happens every time you receive your paycheck? If your employer offers direct deposit, your money probably is funneled automatically into your checking account. If you get paid with old-fashioned paper checks, you probably drive to the bank after work and deposit your check into your checking account. So there’s the problem; your dollars never even reach your savings account, and your savings never grow. This could be a problem. What if you lost your job tomorrow? What if you suffered a serious injury and needed a hefty chunk of cash to pay medical bills? Without built-up savings, you might have to go into debt. Neglected Savings Most people begin withdrawing dollars from their checking accounts as soon as they deposit them. They need this money for groceries, rent, mortgage payments, car loan payments and entertainment. Then, if money is left over, they transfer that to savings. Unfortunately, too often there never is any left-over money. If there is, they forget to move it to their savings account and instead leave it in checking, where they eventually spend it. That is why automating your savings might be the key to making sure that you save enough dollars for a rainy day fund. Automated savings If your employer offers direct deposit, sign up for it. Then, instead of having your entire paycheck deposited into your checking account, have your employer send a fixed amount of your paycheck into your savings account each pay period. First, though, determine how much of every paycheck you can afford to devote to savings. Check your household budget — or draft one if you do not already follow a budget — and calculate your monthly expenses. Then determine how much of your check you need each paycheck to cover them. If your weekly paycheck is $750 and your weekly expenses are $675, that means you can afford to have $75 from each paycheck deposited directly into savings. Don’t be discouraged if after setting aside dollars for your expenses you only have a small amount of money left over for your savings. Every little bit helps, even if it is just $25 from each paycheck. If you do not have direct deposit at work, you can set up automatic money transfers at your bank from your checking account to your savings account. You might, for instance, authorize your bank to send $100 automatically from your checking account to your savings account on the second and fourth Fridays of the month. It is easier to save money when you do not actively have to think about moving that money to your savings account. If you automatically deposit $75 from every paycheck to your savings account, this savings will become a habit. Then your savings account will steadily grow.

Use Direct Deposit to Build Savings

View Resource Use Direct Deposit to Build Savings
There are plenty of rewards that come with the patient investing of your money. The best, though, might be compound interest. You might have heard that term previously. You might even know that compound interest helps your money grow faster. However, you might not realize how powerful compounding is and how much more quickly your savings can grow thanks to the financial miracle that is compound interest. Here’s a brief primer on how compound interest works, and why it pays to leave your savings untouched for as long as you can. How it works In its purest sense, compounding is what happens when you generate interest earnings on reinvested earnings. Effective compounding requires two things: You need to re-invest the money you earn on your original dollar investments. You also need to be patient enough to give your money time to grow. Here’s an example of how compound interest works. Say you invest $5,000 in an account that pays 6 percent interest annually. After one year, that account, thanks to interest, will have $5,300. If you leave that $300 you earned from interest in your account and kept it there for another year, your interest will compound. Your $5,300 will generate additional interest and turn into $5,618 at the end of the second year. That is just the beginning. If you keep that extra $618 in your account for another year, your account balance will jump to $5,955.08. This means that you will have earned more than $955 without doing any work. You can imagine how if you keep your money in your account long enough, you will steadily grow your balance. The key is that every year, a greater number of dollars are earning that 6 percent interest. This means that your balance will continue to increase as time marches on. Look at it this way. If you invest $15,000 at an interest rate of 5.5 percent at age 25, thanks to monthly compound interest that investment will stand at $59,140 by the time you hit 50. That is without you making any additional deposits in your account. The difference between what you originally invested and what you have at age 50 is all a result of compound interest. Boosting Compounding If you want compounding to work more efficiently for you, though, you need to invest regularly in your account. That means adding to your account balance with additional savings on a periodic basis. If you do this, and let compound interest do its thing, you’ll be surprised at how quickly a small investment can turn into a large one. Of course, you have to leave that money alone and allow it to grow. If you keep removing dollars to help with emergency expenses or your regular bills, you’ll sap much of the power out of compounding. There are three simple steps to letting compound interest work for you: First, start slowly. You do not need to make a massive initial investment. Secondly, be patient. Keep your money in place and watch it grow. Thirdly, make regular investments in your fund. Every extra bit of money you add to your account will grow at a compounded rate, too. That can quickly add up to big savings. Using the same $15,000 starting point as above, by adding $100 per month to your account for the same 25-year period will result in an ending balance of $123,638. By adding only $100 per month, you’ve more than doubled your money!

The Wonders of Compounded Interest

View Resource The Wonders of Compounded Interest
Tired of scrambling to pay your bills each month? The problem might not be that you make too little income. It might be that you spend too much each month. The good news? It is easy to reduce your expenses. You might be able to shave hundreds of dollars from your monthly expenses by making simple changes to your spending habits. After you make these little cuts, you might be surprised at how much money you have at the end of each month. With some restraint and planning, you might even have enough money to start saving. Looking for ways to cut your monthly expenses? Try these: Shop around: How do you shop for groceries? Do you just head to the store? A little planning will shave dollars off your weekly grocery bill. Before hitting the stores, check newspaper ads for coupons and sales. This way you can buy milk, chicken and apples where they are the most affordable. Do not forget the coupons: It takes time, but don’t forget to clip coupons before you hit the grocery store, head out to restaurants or take the kids miniature golfing. By becoming an obsessive coupon clipper, you can cut your monthly expenses by $100 or more. Brown bag it: Work in a busy downtown area located close to dozens of top restaurants? It is time to stop dining at these eateries and to start brown-bagging your lunch. By bringing a sandwich, chips and apple from home, you’ll not only dramatically cut down your expenses, you’ll also eliminate unneeded calories from your diet. Be thrifty at thrift stores: You might be surprised at the bargains you can find at thrift and resale stores on clothing, toys, electronics and tools. Don’t be ashamed of shopping in a second-hand shop. Many of the items they carry are in surprisingly good shape. Get on your bike: Gas prices continue to rise. So drive less and bike more. You do not need to take your car to get to the grocery store that’s a mile away. Jump on your bike and reduce your trips to the gas pump. Negotiate: Is your cable bill too high? Is the interest rate on your primary credit card in the double-digit range? It is time to start negotiating. Call your credit card company and tell them that you want a lower interest rate. Tell them that you’ll move on to another card issuer if you do not get one. Call your cable provider, too. Tell them you’ll drop the service if you do not get a lower monthly fee. You might be surprised at how willing companies are to negotiate to keep customers happy. Review your insurance: Insurance — whether auto, homeowners, life or health — can be costly. Review your policies to see if you can reduce your rates by dropping unnecessary coverage. Don’t be afraid to call your insurers to ask if you qualify for any discounts. Insurers, too, are often willing to lower rates to retain customers. A light bulb just went off: Install compact fluorescent light bulbs — better known as CFLs — throughout your home. They cost more upfront, but are more energy-efficient than traditional bulbs and will help you lower your monthly electric bill. Hit the library: Your local library probably lets you rent movies and CDs for free. Many even let you download books, movies and songs at no charge. Explore your library to help reduce your monthly entertainment costs. Cancel magazines and newspapers: You can get most of your news free online today. If your budget is thinly stretched, cancel your magazine and newspaper subscriptions. There are plenty of places to find news for free today. Once you’ve eliminated unnecessary monthly expenses, it is time for one last step: Take a close look at your monthly budget. Adjust it according to your lower expense levels. You just might find more than enough money to handle those monthly bills.

Little Cuts to Save You Money

View Resource Little Cuts to Save You Money
There’s a reason so many consumers are struggling today with sky-high credit card bills. U.S. consumers are addicted to plastic. We use credit cards to buy everything from flat-screen TVs and tablet computers to fast-food cheeseburger and fries meals. The problem is buying with credit can cause you serious financial pain. Simply put, paying for items with your credit cards is one of the costliest ways to make purchases. Cash is best The best way to buy something? Save up the cash you need and then make your purchase. This way, you will not be charged any extra fees or interest on credit purchases. You’ll only pay what the item costs. Of course, this is not always possible. Sometimes you will not have the cash available. In such cases, the next best option is to purchase an item with a credit card but then pay off that card’s balance once the bill comes due. If you do this, you will not be charged interest on your purchase. Also, it is when you do not pay off your credit card balance in full, and the interest starts piling up, that you’ll learn just how costly credit can be. The impact of interest Say you buy an $800 laptop computer with a credit card that comes with an interest rate of 18 percent. If you pay only the minimum payment on that debt each month — in this case, $16 — it will take you an astonishing 94 months to pay off that debt. What’s even more shocking, though, is the amount of interest you’ll pay during this time: more than $689. That means that you’ll end up paying nearly $1,500 for that $800 laptop computer. Consider that is on a relatively small purchase. If you let your credit card debt rise too high, you could end up paying huge amounts of interest if you do not pay off that balance each month. Other fees Paying interest is only one of the many ways that purchasing with a credit card can be more costly. Some credit cards, for instance, charge annual fees that you’ll have to pay whether you use the card or not. There are plenty of credit cards available today that don’t come with annual fees. There’s no reason, then, to sign up for one that charges such a fee, unless the card offers additional benefits that you find to be worth the cost. If you make your payment late, you might suffer a late fee of $15 to $35. That is not the biggest hurt that comes with late payments. Plenty of credit card companies will boost your interest rate if you pay late. This means that your rate can instantly skyrocket from a reasonable 14 percent to a painful 29 percent. What if you accidentally go over your credit card’s spending limit? Again, you’ll potentially face a fee. This is an over-the-limit fee and can run you an additional $15 to $35. Finally, be careful about taking cash advances on your credit cards. The costs for these vary according to the financial institutions issuing the credit card, but they can be excessively high. The lesson here? If you use credit cards, be careful. Your best bet is to pay off your balance every month. If you cannot do this, you might be surprised at how quickly that credit card debt grows. 

The True Cost of Buying on Credit

View Resource The True Cost of Buying on Credit