The rate of return is usually just a bit higher than a money market account, and it is a safe investment since the funds are guaranteed. It is not a great way to grow your money, but it is a great way to keep it safe. This is a good strategy for longer-term savings that you want to protect, like your down payment for a home. However, you may be able to earn a higher interest rate with another method. Mutual funds are better for long-term savings because you will need time to let the funds recover if the market decides to dip. Keep this in mind when you start saving money in mutual funds. If you need the money within five years, consider a different option for your savings. Review the fees for a mutual fund before you choose one because they could have a significant impact on your returns. There are five types of fees:
Expense ratio: Charged as a percentage of managed investments.Commission fees: Charged per trade that you place.Redemption fees: The fee you pay when you sell your shares.Service fees: Also referred to as 12(b)1 fees, they’re paid to financial institutions for marketing the fund.Short-term trading fees: Applied when you sell mutual funds within 30-90 days of purchasing them.
If you can maintain the minimum balance requirements, these accounts are a good place for your emergency fund. However, if you drop below the minimum requirement, you usually end up paying a service fee and forfeit interest earned during the month.
