Your bank or credit union can be your most valuable partner when it comes to saving for retirement. You may have always thought of your financial institution as just a place to keep your money, and that is one of its functions, but as a retirement savings partner, banks and credit unions have resources for you that are convenient and often high in return.
The simplest form of savings offered at your bank or credit union is the simple savings account. Interest rates on a savings account, where you have instant access to your money will be much lower that a certificate of deposit, a treasury note or another instrument, but with CD’s and treasury notes you must commit to have your money tied up for a length of time. With a savings account you are at least earning some interest, and if you put a small amount of money every month –save fifty dollars, then at the end of the year you’ll have six hundred dollars saved—enough money to go ahead and buy a CD that can earn higher interest.
Where CD’s are concerned the longer you commit the money, the more interest you’ll get. As an example, let’s say a one year CD for one thousand dollars will earn you three percent. That means you’ll earn thirty dollars in one year for having your money in the bank. But, if you know that you won’t need that money for five years, the interest might be as high as four percent, so the same money will earn you forty dollars a year. CD’s, like savings accounts, have the benefit of being federally insured.
If you’ve accumulated a little more money and would like a higher rate of return, but don’t have a lot of knowledge of the stock market, remember that many banks and credit unions these days have in house investment divisions, with financial advisors who are willing to counsel you on the benefits of different types of investments. Mutual funds are a popular choice because of the diversity they offer. A mutual fund is a group of people pooling their money together and buying shares of equity stocks in many companies, or investing in government bonds or perhaps corporate bonds, or in real estate or public utilities. The benefit of mutual funds is diversity. You spread your money around to lower the risk that comes from putting all of your eggs into one basket. You also increase your chances of doing well with particular investments because with diversity you have more investments made.
For the more experienced investor, banks and credit unions will often offer you the chance to invest directly into the stock market, or to buy municipal bonds or other financial instruments. Banks and credit unions will also serve as sales agents for US Treasury notes, so if you are ready for long term investments, with the tax breaks treasuries offer, the bank or credit union could be the right place to shop.