Student Investment Expert- July 2009

Often, people do not invest because they percieve investing as too difficult or complicated, but investing can be as simple as using the proper accounts to store your money. Investing is simply another form of saving. Instead of putting your money in a checking or savings account, put your money elsewhere. The first area of your finances you should examine, before you ever begin talking about investments, is your bank account.

It’s easy and convient to keep all of your money in your bank’s checking or savings account, but these accounts offer extreamly low interest rates. If you spend some time figuring out how much money you need each month to pay your bills and expenses, you can determine exactly how much money you need on hand at any given point. Keep that money in a normal bank account and invest the rest.

Investing does not always have to be complicated. If you have extra money, look to a Certificate of Deposit (CDs). Every bank offers them, and they offer higher interest rates than savings and checking accounts.  A Certificate of Deposit is a promise that you will give the bank money for a fixed period of time, and will pay a penalty if you withdraw your money early.  For the guarantee of keeping your money with the bank for that time, the bank will pay you higher interest than a comparable savings account.  Banks will pay a premium for not having to deal with the uncertainty of when you will withdraw your money from their institution.

Certificates of Deposit come in durations as short as one month and as long as five years.  Generally, the longer the CD, the higher interest you will get, but there are always tradeoffs.  You don’t want to lock into a multi-year CD when interest rates are very low.  For example, today, you will find few banks offering CDs with interest rates more than 2-3%, even for CDs that are five years long.  In times like today where interest rates are surely to go up over the next few years, you want to lock in relatively short term CDs.

Certificates of Deposit are good ways to get paid higher interest rates on money you know you won’t use for a while.  With a little bit of planning, you don’t have to let free money pass you by.  A good website that will show you the banks that are offering the highest rates on their CDs is: http://www.bankrate.com/cd.aspx. Make sure to do your research! Rates on CDs differ widely between banks.

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