Long Term saving accounts are used to hold the money that you do not need to use any time soon.There are several types of long term saving accounts such as high yield accounts, Certificates of deposit and IRAs. These accounts is used by customer if they have a financial purpose like saving for children marriages.
What is Long Term Savings Account?
Long Term Savings Account are used to hold the money you do not need to expense in near days. You can have a long term saving accounts at a financial institution,credit union or bank. Some may have withdrawal limits or charge monthly fees. Long terms saving accounts are ideal for purposes that are many months or years. It benefits you in form of compounding interest.
Who Needs a Long Term Savings Account?
Having a long term savings account can benefit every one who desire to more money and does not wish to spend in near future. For example if you want to pay your children college fees in future and they are still young it will helpful in future.It also helpful when you are ready to retire. Sometimes they offer tax advantages.
Types of Long Term Saving Accounts
Every Long Term Saving Accounts are different to each other. They are different in interest rates, fees you might pay and any applicable tax.
Education Savings Account
A 529 saving accounts permit you to contribute amount on behalf of a qualified beneficiary such as your self grandchild or your child. Those contributions are tax free withdrawals and grown tax deferred when used for qualified education spending.
A Coverdell Education Savings Account ESA works the same path however the difference is that a Coverdell ESA maximum your yearly contribution at $2000 and no further contributions can be made after the beneficiary 18th birthday.
You must draw all amount from beneficiary accounts at his/her 30th birthday otherwise a tax penalty imposed.
Certificates of Deposit
CDs are time deposit.The money you enter to CDs earns interest over a specific period.Once the CD matures your get your initial deposit along with the interest earned.
First compare CDs rates before choosing one.Some CDs have longer duration as long as 10 years and some have shorter period 30 to 90 days.In most case the longer the CD term the maximum your interest rate and APY are likely to be.
High Yield Saving Accounts
High yield saving accounts give you interest rate and annual percentage yields (APY).High Yield Saving Accounts from banks can also charge less fees allowing you to keep more of the interest you earn.
Employer Sponsored Retirement Accounts
An Employer Sponsored Retirement Accounts is another long term saving accounts with tax benefits.Annual contribution limit is higher than IRAs and contributions are tax deductible.
Individual Retirement Accounts
IRAs are tax benefits method to save for retirement. Traditional IRA taxes are deductible on your contributions each year. Roth IRA you do not get a tax deductions for contributions but withdrawals are 100% tax free.
Money saved in an IRA can be invest in exchange traded funds or mutual funds.
How To Use Long Terms Savings
- Check account fees
- Choose accounts suit your time frame
- Remember rates can change
- Compare Interest Rates
- Remember CD maturity dates