The simplest type of account available is a basic savings account. This account allows you to earn interest on your money. This money is stored securely at your bank as long as your bank or financial institution is FDIC insured. There is no risk involved with a savings account. Banks offer different rates of return on their accounts, so you can research which banks have the best rates before deciding which to open an account with. Account minimum balances may apply.
Money Market Accounts
Money Market accounts generally require you to maintain a higher minimum balance in return for a slightly better rate than a basic savings account.
Certificates of Deposit (CDs)
A CD requires you to investment your money for a certain period of time. It could be a few months to a few years. Usually you earn a higher annual percentage rate as the terms get longer. For example, you might earn 0.30% APY for a 3 month term to 1.65% for a 5 year APY CD. Please note that early withdrawal penalties apply for most CDs, so make sure to choose a term that most suits your needs.
Bank fees vary and each account may have different requirements. Ensure that you read all account details before selecting your bank, as well as your account.
The above bank products are insured by the FDIC at insured banks and financial institutions. You can review the deposit accounts insured by the FDIC as well as their Coverage Limits here. Contact your bank or financial institution to ask them any detailed questions about your accounts.
When you own a stock, you own a share of a public company. You are considered a shareholder and basically you own equity in that company. You are not involved in the day to day operations of the company, but your stock does entitle you to vote for the board of directors for the company. You can earn money of this type of investment as your stock appreciates in the open market. As your stock increases in value, you can sell the stock to claim your profit. A stock may also pay a dividend, but not all do. However, there is risk involved in stock investments. The amount in you invest in the company stock is not secure. There are no guarantees, and if your stock declines in value or goes bankrupt you can lose some or all of your investment amount. A company may also go bankrupt. If you own stock in a particular company, you are not personally liable for any debt the company may incur. Basically, the stock grants you limited liability.
If you are interested in investing in stocks, you would most likely need an account at a financial institution and work with a stockbroker or financial adviser. Please note that there are fees involved every time you trade stock for both buying and selling. Many financial institutions require a minimum investment.
There are some options to buy stocks for lower costs by using various services or apps. Read this great article by Theo Thimou on Clark Howard’s website about 6 ways to buy stocks for free or very cheap.
An annuity is an insurance product that requires the insurer to make payments to you either immediately or in the future after an individual has invested funds with them. When you invest in an annuity, you can either make a single payment or make payments on a regular basis (monthly/annually). A fixed sum of money will be paid to the person each year, usually for the rest of their life.
Annuities are typically used as an investment that will be paid out during retirement.
Types of annuities:
- Fixed: They pay a guaranteed rate of interest. They can be deferred or immediate. Retirees may use a fixed annuity to provide a guaranteed steady stream of income for life.
- Variable: This allows you to choose an investment, and you are then paid based upon the performance of the investment that you selected. You are guaranteed a minimum payment from the insurer, but it will vary depending upon the return on the investment.
FOREX is the exchange of one currency for another. All of the world’s currencies trade on this global decentralized foreign exchange market. This market is extremely important due to the need to exchange currencies in order to conduct foreign trade and business. Unlike stocks which are traded on specific markets, the foreign exchange works OTC (over the counter) without a specific market. The FOREX market operations on a 24 hour basis from Sunday evening to Friday afternoon EST.
In FOREX trading, a small margin deposit, known as leverage, can control a much larger total contract value. Leverage gives the trader the ability to make nice profits, and at the same time keep risk capital to a minimum. However, leverage can be dangerous if not monitored properly.
Even small fluctuations in exchange rates can be taken advantage of to earn profits in the FOREX market by buying, selling or exchanging currencies.