So, you'd like to save money.
Maybe it's for retirement. Or a new home. Or a "business" trip to Bora Bora to study the prospects of selling cyberporn to the natives. (Wait, are there even natives there? And do they have broadband? Another research trip!)
If you're a self-employed porn webmaster, you may be savvy about accounts receivable but still a bit hazy on the complicated alphabet soup of CDs, ETIs and REITs.
Never fear: Here's a quick primer on where to put your money. A future column will explore other investments such as stocks and mutual funds.
(As always, here's the disclaimer: I'm not a certified financial planner. You should not make major decisions about your finances without consulting an expert.)
Scenario No. 1: You want to make money within the next few months and then spend it.
OK, head to the horse track. If that sounds too risky, you're going to be looking at short-term financial investments. The main problem: It's hard to make a lot of money when you're not willing to save it.
You could go to your bank and open an interest-bearing savings account, from which you can't write checks, or open a checking account that pays interest - although it probably won't be much.
Either way, ignore the stated interest rate when you look into opening an account. Banks do all sorts of strange things with interest - compound it, re-compound it, run it through the spin cycle, etc.
You want to keep your eye on the prize: "APY," the annual percentage yield, which means how much interest you'll make off your money in a year. If the APY is 5 percent, that means a $100 investment will turn into $105 after one year.
Anther alternative is a money-market checking account. These accounts allow banks to take your money and invest it in short-term investments. In return, they let you make more interest.
Money-market checking accounts pay higher interest rates than savings accounts but put limits on the number of withdrawals you can make and may only allow you to write a few checks a month. Basically, they're checking accounts-lite.
The bright side: You still have control of your money, at least to an extent. The not-so-bright-side: In recent months, annual money-market rates have been around 3.75 percent at the highest, and that's not a lot.
Scenario No. 2: You can afford to let your money sit for a year or two or longer
Consider socking your money away in a certificate of deposit.
Yes, CDs still exists. They're kind of like Joan Rivers - old fashioned, vaguely decrepit and decidedly un-sexy. However, you sometimes can catch a pretty good deal, especially when interest rates as a whole are on the rise.
The usual rules apply: You give the bank your money for a certain amount of time (six months, two years, even longer). In return for getting the chance to play with your money, the bank pays you an annual interest rate.
The rates these days aren't huge. At the time of this writing, the highest I could find was 5 percent on a one-year CD.
With CDs, you're basically making a gamble that today's interest rate still will look attractive down the in six months or two years - or whenever it expires.
On the contrary, you could do much worse in the stock market.
Remember, there can be a substantial penalty for early withdrawal. You could lose months of interest if you decide to take your money out early.
Tip: Your bank isn't the only place where you can buy CDs. Shop around online for the best rates.
Scenario No. 3: You'd like to save money for more than five years
Take a look at what the federal government offers. Yes, that federal government, the one that gives you nightmares about 3 a.m. phone calls from the attorney general's office.
They're not well known, but U.S. savings bonds known as "I bonds" actually are an intriguing deal. You get a fixed rate plus an inflation-adjusted rate, and both are adjusted annually for the 30-year life of the bond.
It's impossible to lose money and you could do quite well, thanks to the inflation adjustment. As of this past summer, the composite rate was 4.84 percent.
Pros about I Bonds: The interest is exempt from state and local taxes. You can buy the bonds online. They cost as little as $25.
Cons: You'll get dinged interest penalties if you redeem your I bonds within the first five years. They're not exempt from federal tax. And, of course, you're giving the feds your money. But maybe, just maybe, you'll come out ahead.
- Andy Winterbottom
This article originally appeared in the November 2008 issue of AVN Online. To subscribe, visit AVNMediaNetwork.com/subscribe.
