Managing Your Savings
By: Source: AARP.org Date Posted: 2005-03-20 12:08:57
When you save your money, you usually place it in an account at a bank, savings and loan association, or credit union.
Your money can earn interest in a savings or money market deposit account, or in a certificate of deposit. These accounts are guaranteed against losses up to $100,000 if your financial institution is federally insured. This means that if your bank or credit union fails, the government will give you back the money, up to $100,000, that you deposited in these accounts. The government does not insure money that you invest in stocks, bonds, money market mutual funds, mutual funds, life insurance policies, annuities, government securities, municipal securities, or U.S. Treasury securities–even if you buy them from an insured financial institution.
How is Savings Different from Investing?
Don't confuse saving with investing. When you invest your money, you purchase assets–such as stocks and bonds–that you own as property. Your investments can earn income in a variety of ways. You might receive stock dividends or bond interest throughout the year. If your stock increases in value during the time you own it, you will also earn capital gains when you sell the stock at a profit.
Generally, your rate of return on investments will be greater than what you would be able to earn on savings accounts. But investing is more risky than savings. You can lose money if the value of an investment declines, and the government will not pay back your principal if you lose money on an investment.
Both saving and investing play important roles in helping you carry out your financial plan. In this section, we'll talk about saving. For more information about investing, see Managing Your Investments.
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