Saving money in banks or any financial institutions has always been a good way of investing for any future needs or when rainy days come. In Western countries, the most common way of saving has been through a fixed-rate account because of the high interest rate it offers. In instant access savings accounts and fixed-rate accounts, you are required to deposit your money for a fixed period of time where withdrawals in between are not allowed. This kind of account is best if you have plans to have substantial amount of money for your retirement.
Individual retirement accounts, or IRAs, are fixed-rate savings accounts intended for individuals who want to save for future plans. IRA is divided into two kinds: Traditional and Roth. In traditional IRA, the money you invested as well as the profits of your investments is not taxed. Taxation will only be carried on when you start withdrawing from the account after you retire. The primary function of Traditional IRA and an IRA savings account is saving for the purpose of retirement. For this reason, the account holder must wait for his retirement age in order for him to withdraw and use the money.
In Roth IRA, your contributions will not be deducted with tax and you don’t also pay taxes on your withdrawals later on. It is a popular way of saving money to invest for purposes of paying for college education or housing plan because you can withdraw the money much earlier than what is required than that of the traditional IRA. In traditional IRA, you must wait until you reached the age of 59 and ½ years before you can use your money while in Roth IRA, the money need only to mature for five years before you can withdraw from it.
But as time changes and so with the economic situations, the popularity of fixed-rate accounts waned and easy access accounts are gaining grounds. Easy access accounts also called as instant access account allow the savers to withdraw and deposit money anytime. This kind of account came in handy in times of unexpected situations when money is needed.
How to Choose the Best Instant Access Savings Account
The interest rate for fixed-rate account could reach up to more than 4% while for instant access, rates just stays at less than 3%. But, going after the best instant access savings rates is not important for some people especially if we talk about savings. What is more important for them is that they have an easy access account that they can rely on at any given time. There are various kinds of savings account to choose from depending on one’s preference.
A type of instant access account is the so called tax free savings account or TFSA. It is a flexible, registered general-purpose savings vehicle that allows Canadians to earn tax-free investment income to more easily meet lifetime savings needs. If you decide to withdraw the full amount of your account, you can do so and you can put it back anytime. Withdrawals and investment income from this account are tax-free.
Interest bearing checking accounts are another type of instant access checking account wherein the interest income will based on your available balance. The bank usually requires minimum balance amount for this kind of account and fines are usually imposed if your available balance is lower that what is required. The interest rate of this account is typically lower compared to other regular savings due to its liquidity.
The list is long for financial institutions that are offering many options to attract instant access savers today. A word of investment advice, make an extensive study first before you put in your hard earned money to ensure that you get the best interest rate. Don’t be easily swayed by promotional offers and be more concerned on the long term interest earnings for your savings.
I used a fixed rate IRA back when I first started investing at age 18, but since have found that investing in a self directed IRA with a brokerage firm is generally better. That way, you can select mutual funds, stocks, bonds, etc. as you desire, instead of being locked in to one investment selection.