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May 23rd, 2008
It’s important that you put aside money so that you’ll have the extra cash around when the need arises– and the need will arise. But most people wouldn’t know a yield curve if it waltzed up and sat in their lap. Before you can research all of the different ways to save, you’ll need to know some of the basic terms associated with emergency fund savings.
Savings Accounts
Most people have an ordinary savings account, which you can get at the majority of retail banks. These accounts are insured by the FDIC for up to $100,000. Most savings accounts have a low interest rate, few fees, and a low minimum balance (sometimes no minimum at all).
Emergency Funds
An emergency fund is a certain amount of money saved for, you guessed it, emergencies. They’re typically kept in a liquid account (such as the aforementioned savings), and it is recommend that you keep three or more months worth of living expenses stored in an emergency fund.
401(k) Plans
Numerous employers offer 401(k) plans, and these allow you to invest a portion of your salary– which may be matched, or partially matched by your employer– in a savings or profit-sharing plan. At the age of 59.5 you may withdraw this amount without incurring any penalties, and taxes on your plan are also postponed until this time.
Mutual Funds
A mutual fund is an investment in bonds, stocks, and similar markets– sometimes a combination of the three– which is shared with other investors and managed by a financial professional.
Roth IRAs
Roth IRAs are a bit different than regular IRAs: withdrawals aren’t taxed if you’re over 59.5 years old and the account has been open for longer than five years. IRA is an acronym for Individual Retirement Account.
Yield Curve
A yield curve is simply a graph showing the relation between maturity of savings and earnings. The lengthier an investment’s maturation, the more you earn. The curve becomes flatter when the rate difference between short- and long-term investments is diminished.
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