Understanding Savings Account Options in Missouri

Every financial institution offers some form of savings account. The advantage of having a savings account is that it pays interest on your money, and up to $100,000 in deposits is insured by the federal government. Some banks charge fees for savings accounts and have restrictions on how often you can withdraw funds, but a savings account is the best place to put your money away for the future.

When shopping for a savings account, look for a bank that will offer the highest interest rates with little or no fees. Savings account interest is tied to the rates set by the Federal Reserve Bank, so interest rates tend to be competitive. If you can find a bank with a strong interest rate, your money will accumulate compound interest. The great thing about compound interest is that the longer you leave it on deposit, the more it grows, because the bank pays interest on the total amount in deposit, i.e., your initial deposit and any interest paid.

To achieve higher interest, some banks place restrictions on savings accounts, such as minimum balances or limited withdrawals per month. Most banks also offer ways to make saving easier, such as automatic savings transfers that move a set amount of money from checking to savings at weekly or monthly intervals. Check to see if your bank offers additional savings tools that you can use. For example, First State Community Bank offers a Pocket Change program that rounds up Mastercard transactions and adds the difference to your savings account.

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Money Market Accounts (MMAs)

A Money market account (MMA) is similar to a savings account but with additional terms, such as needing to have a certain level of funds in order to open your account. MMAs can offer higher interest rates, but this is typically in exchange for restrictions such as maintaining a strict minimum balance. They also have advantages such as limited check writing, unlike standard savings accounts. Depending on how you plan to use your savings, you could benefit from a savings account, an MMA, or both.

Certificates of Deposit (CDs)

A certificate of deposit (CD) is a great strategy for long-term saving. The idea behind CDs is that you “lock up” your money for a longer period of time, but earn a higher interest rate in exchange—the longer the term, the higher the interest, and the more you will earn.

One way to combine savings strategies is to use your savings account or MMA to put aside money for a certificate of deposit. For example, once you accumulate $1,000 or more, you could invest in a CD with terms from six months to 10 years until maturity. If you invest $1,000 in a six-month CD at 3,15 percent, it would be worth $1,015.63 after six months. That same $1,000 in a six-year CD would be worth $1,204.52 at maturity. The catch? You can’t touch the money until the end of the term. There are stiff financial penalties for early withdrawal.

CDs are an ideal savings tool for long-term financial strategies. For example, if you are saving to buy a new home at some future date, or are anticipating a major expense such as your child’s college tuition, CDs could provide higher earnings and make the cash available when you need it.

Educational Savings, 529 Plans, and MOST 529s

There are special accounts specifically designed to allow you to set aside savings for educational purposes. The most common is the 529 Plan, which is a tax-advantaged plan designed to set aside money for education. There are both prepaid tuition plans and education savings plans.

A prepaid tuition plan allows you to purchase credits for tuition in advance for an account beneficiary. Most prepaid tuition plans are restricted to certain educational institutions, require state residency, and are applicable for tuition only, not room and board or other costs.

An education savings plan is more flexible, allowing you to save tax-deferred money for educational purposes, such as college, elementary school, private schools, and so on. This kind of plan also covers room and board, books, and other education-related expenses.

Missouri residents are eligible for an additional educational savings option—the MOST 529 Plan. MOST 529 offers benefits such as tax-deferred savings of up to $325,000 that you can save for any beneficiary. There are no taxes for withdrawals to pay for qualified educational expenses, and students aren’t limited as to where they can go to school. The state of Missouri also allows you to deduct up to $8,000 for single tax filers and $16,000 for joint tax filers from your state income tax.

If you aren’t sure what types of savings accounts are right for you, talk to an advisor on our team. We’re here to help you determine which savings options will help you make the most of your money and propel you to achieve your goals.

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