Types of Savings Products — Guide to CDs, IRAs, Government Investments, and IDAs

CDs, Money Market Accounts, Government Investments, and IDAs

In addition to traditional savings accounts, these tools can help you save money for the short- and long-term.

Certificate of Deposit (CD)

CDs are timed deposits that earn interest. Money saved in a CD with your bank is deposited for a certain amount of time and earns interest when it matures (when the term is up).

CDs can be good places to save your money if:

  • You are saving for a big purchase planned for a year or two away.
  • You want your money to be safe and earn more interest than a savings account can offer.
  • You will not need to access your funds during the term of the CD.

CDs typically earn higher interest rates than other types of deposit accounts, such as checking and savings accounts, but your money is off-limits until the CD matures. If you cash-out a CD before it matures, you may pay a penalty.

Generally, the longer the term of a CD, the higher the interest rate will be. Terms vary from one month to five years.

Money market accounts

A money market account is a type of savings account. Money market accounts often pay higher interest rates than traditional savings accounts, though sometimes money market accounts have higher minimum balance requirements.

You can usually withdraw cash from a money market account and write checks from the account. However, you may be limited to making between three and six withdrawals or checks per month and pay a penalty for going over that amount.

Money market accounts can be good places to save your money if:

  • You will need access to your cash in the short-term.
  • You will not need to withdraw from the account more than a few times per month.

Government investments

The U.S. government sells investments, including Savings Bonds and Treasury Bills, to the public. It uses the money raised to run the federal government and pay its debts.

Government savings bonds and treasury bills are safe and secure investments, because the U.S. government guarantees that interest and principal payments will be paid on time.

U.S. Savings Bonds

Here is a basic overview of of U.S. Savings Bonds:

  • There are two kinds of savings bonds:
        —Series EE are guaranteed to double in 20 years
        —Series I pay a fixed rate of interest adjusted for inflation
  • Bonds are long-term securities that earn interest for up to 30 years.
  • Bonds are available in denominations of $50 to $10,000.
  • Interest can vary, but you always get a minimum return.
  • Interest income is subject to federal income tax (but not state or local tax).
  • You may defer tax on the interest until the bonds are cashed in.

U.S. Treasury Bills (T-bills)

Here is a basic overview of T-bills:

  • T-bills are short-term securities that mature in one year or less from their issue date.
  • They are sold at a discount from their face value, so you make money because you are paid the full face value at maturity.
  • They are available in increments of $100.
  • Interest income is subject to federal income tax (but not state or local tax).

You can learn more, purchase savings bonds or treasury bills, and find current and historical rates online at the Treasury Direct Web site.

Individual Development Account (IDA)

IDAs are special savings accounts that help low-income families save money to pay for important things like college, a home, or a business.

Certain private and public organizations agree to match contributions to IDAs, helping people save more toward a college education, home, or business of their own.

IDAs typically only allow three uses:

  • Purchasing a first home
  • Pursuing post-secondary (college) education
  • Starting or expanding a small business

Most people who have IDAs also take part in money management classes to help them repair their credit, create a budget, and stick to a savings plan.

Looking for an IDA program in your area? The Corporation for Enterprise Development has an online directory of IDA programs nationwide.

What is FDIC insurance?

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the United States government created to protect depositors in the event a bank fails and cannot refund their money. It is, literally, an insurance policy that participating banks pay for to protect consumers. If a bank is unable to reimburse depositors, the FDIC steps in and does it for the bank—up to $250,000 per ownership type (single or joint). It is important to remember that the FDIC coverage levels for individual accounts are expected to return to the $100,000 limit on January 1, 2014.

This site is for education purposes. The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the availability or suitability of any Capital One product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional.