The old saying goes that one man's junk is another man's treasure. The same wisdom applies to financial investments. Back in the late 1990s, when I was contemplating writing my stock broker's exam, I learned some suprising statistics about personal savings. To summarize, the fact is, North Americans have a hard time saving money, primarily because they go about it with very little guidance. Every pre-college student should learn more about investment and savings than just the mathematics of calculating the interest on a loan or a savings account. But that is unfortunately not the case, even though the financial health of the nation depends on this knowledge.
So, then, we're back to asking: what makes a good investment? Answer? Simple: anything that gains you more money than you started and does not require you to invest more time than you want to. The average person does not want to take the time to learn a great deal about the stock market or financial investment options. They are only roughly interested in the stock market because they know that changes may affect them directly or indirectly. If they are "small" investors, they may not feel much impact. Large investors may want to shuffle their portfolio or sell. Or even buy. Both types might have concerns about the state of their own employers and thus their jobs.
So everyone, to the best of their existing knowledge and ability tries to put something away for the proverbial "rainy day". I know people who literally save money in an old sock, or a tea tin. That's money that'll never collect any interest, but there are also no banking fees to worry about either. A safe investment with a total net gain of $0.
Those people with a fair bit of investment knowledge go into stocks, bonds, even regular trading. But this takes a heavy investment in time and research. To be even mildly successful in trading, you need to read financial papers daily, watch the news, even the weather, as it affects crops and, ultimately, numerous industries, which in turn affect the stock market. A veritable Rube Goldberg domino effect, but not necessarily so amusing.
Here's a secret that financial kingpins don't want you to know: the economy is of course tied to the stock market, and investing is like a game of musical chairs. When a bubble bursts (such as the tech bubble in 2001-2), someone is left holding the empty bag, with no chair to sit down on, so to speak. Investing can be a risky business. I went from being up $600 on a $1200 stock investment to being in the hole $5000 in just three days, after pumping good money after bad. And I "knew what I was doing".
So what do people with just a bit of investment knowledge and only so much time do with their money? You want more than a 0.5% return on your savings, and be able to keep your money liquid, in case you need to get at it fast. And you want easy access to your account status.
Well, the Internet has made it easier for banks to offer a new type of savings option called the online savings account. Essentially, these function the same as a regular bank savings account, with a few differences:
- You can sign up online without previously having been a customer of the offering financial institution.
- You can access your money online, via the Internet, and check your balances and expenditures.
- Your money is protected. For U.S. customers, your savings are protected by the FDIC (Federal Deposit Insurance Corporation), a federal agency, up to $100,000 per SSN (Social Security number).
- It's like a regular bank account, but the fees are lower and the interest is higher: roughly 4% (at the time of writing), compared to a regular savings account, which pays out about 0.5% in most banks.
Online savings accounts pay out about 8 times or more of the interest of a regular savings account, don't require a knowledge of investment, don't require tracking on a daily basis, and are completely liquid. For many people, this is a good investment. Or at the very least, a safe place to squirrel away a bit of money while deciding what to do with it.
If you're convinced and are looking for somewhere to start, here's a suggestion. Try any of Ing Direct, Emigrant Direct, or HSBC Direct, if you are in the United States. (At present, we are not recommending options for readers outside of North America.)
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