Econ 101

Fixed vs. Non-Fixed Rated Savings Accounts

// October 11th, 2011 // Business Services

Saving money for a long term goal is something every working person should practice. Whether you’re saving for retirement, your kid’s college, or a down payment on a house—even if you’re just saving for that motorcycle or sports boat you’ve always dreamed of—a savings account is a sure way to get there. It takes time and discipline, but the reward will be receiving what you’ve saved for. Obviously you should always try to find banks that offer the highest interest rates so that you can get the best return on your money. You need to consider which kind of savings account is the best one for you, though. A non-fixed rate account may offer you a higher interest rate to begin with, but lower it at any time. You don’t really know how much money you’ll be able to make over the course of years or decades—it all depends on the financial markets. On the other hand, you’ll have free access to your account with the ability to pull out money at any time.

If your savings is for an emergency fund, you may feel the need to have that access. Fixed rate savings accounts offer a guaranteed rate of return. That means you can calculate exactly how much money it will generate, according to how much you put in and how long you leave it in there. Usually these interest rates are quite high. You won’t get your money back until the end of the agreed upon period, though. That’s the trade off—guaranteed interest in exchange for guaranteed investments. If, for instance, you want to save for your daughter to go to college, you should start by estimating how much money you’ll need, and in what year. You can figure backwards from there to know exactly how much money you need to invest every month and at what interest rate to generate the desired total. That’s the kind of security that some people want for their savings. On the other hand, some people want the freedom to move their money around at will. Pick whichever account suits you the best.