Guidelines for Saving

Often a very short time seems to elapse between the minute you put money away for a rainy day and the unexpected thunderstorm. The average American saves or invests about 6 percent of the household income.

Saving requires that you not spend your money for current satisfaction but that you accumulate it for emergencies or major expenditures. Saving is a practiced habit you support to have more money to use in the future. A savings plan makes it possible to spread consumption over a lifetime.

Savings are usually placed with institutions that promise to preserve capital and offer a steady income. Investments can be made to insure financial independence as your savings grow.

Saving -- Part of the Total Package

Saving is at the base of the investment pyramid and is a part of the total investment portfolio. It is necessary to save to further an investment development.

Savings may earn fixed or variable rates of interest.

How Much To Save

What are your reasons for short-term savings? Long-term savings? Your goal for emergency savings should be whatever makes you feel comfortable. Financial advisors suggest two to six times your monthly expenses for an emergency fund.

Calculate how much money you need for short-term or irregular expenses, such as car tag, taxes, or insurance premiums. If you need a total of $600 for irregular expenses for one year, you must put $50 a month into a short-term savings program.

Review your long-term goals. How much money do you need to put aside annually to reach your goals? Divide the annual amount by 12 to determine monthly savings for long-range goals.

Where Can You Put Savings?

• Banks
• Savings and Loans
• Brokerage Firms
• Credit Unions

Who Can Open a Savings Account?

• Banks and Savings and Loans -- In Mississippi, a savings account may be opened in any name that has a Social Security number (tax ID). Identification must be furnished.
• Credit Unions -- You must hold membership in the credit union. Cost of membership varies from $5 up. Minimum deposits are sometimes required.

Basic Information

• You must choose between immediate spending or saving for later spending. Effective management of cash flow can increase savings.
• A spending plan should accompany a saving plan. (A financial plan should help you reach your goals.)
• Establish goals for saving. Involve your family in identifying goals. Savings are to take care of emergencies as well as long-term and short-term wants and needs.
• If you save a small amount per pay period, your savings account will grow steadily.
• There are several interest-earning accounts in which to put your savings.

Ways To Save

• Get into the habit of saving on a regular schedule. Pay yourself first.
• Save refunds or bonuses.
• Fill a coin jar with change.
• Use debt-to-credit switch. At end of installment payment, switch that payment to a savings program.
• Kick-the-habit plan. If you are a smoker spending $15 a week for cigarettes, cut out or at least cut down on cigarettes and put up to $780 in savings yearly.
• Put overtime money in savings.
• Develop a short-term austerity program. Buy nothing unless you really need it.
• When you get a raise, save it.
• Put monetary gifts into savings.
• Use automatic deduction -- to credit union from payroll check, or automatic transfer to savings account from checking account.

Mississippi Law and Dormant Accounts

The Uniform Disposition of Unclaimed Property Act became law July 1, 1982. This law affects any bank customer who has a demand, savings, or matured-time deposit in which no interest is shown for 7 years or more. The customer may show an interest in his or her deposit by making a deposit or withdrawal, corresponding in writing with the bank about the account, or by receiving the account statement mailed by the bank. As long as the account statement is not returned to the bank for non-delivery, the account is considered active and will not be reported or paid to the state.

Factors To Consider When Choosing a Savings Option

Yield

What interest rate does the savings earn? How is the interest computed? Is the interest fixed or variable? What is the base for the variable? How often is the variable subject to change? Dividends (interest) are usually paid quarterly and are based on the previous quarter's profit. As of March 19, 1993, banks are required to express advertised rates as the Annual Percentage Yield (APY). This percentage expresses the amount of interest that would be expected from a $100 deposit in 365 days.

The Effect of Compounding -- Suppose there is a $1,000 savings account that earns an annual rate of 4.0 percent for one year. How much interest will you be earning with various compounding periods?

When interest rates are stated as annual percentage yield, the effects of compounding are built into the quoted interest rate.

Liquidity

How easy is it to withdraw funds? Are you limited to the amount or number of times you can withdraw funds?

Safety

Mississippi requires any financial institution to carry federal insurance. Each depositor should ask -- How safe is my deposit? What type of insurance is offered?

FDIC

Federal Depositors Insurance Corporation (FDIC) insures deposits in federal and most state banks, including commercial, savings, and mutual savings banks. Each basic account is insured up to $100,000. Insured banks must display the official FDIC sign in each teller's window. Banks approved for FDIC insurance must adhere to standards determined regularly through bank examination.

The FDIC is on hand and usually begins payment by check to the depositors within three to five days after the date of a bank's closure. If questions are not answered locally, FDIC provides a toll-free hotline for answering questions. The hotline number is 1-800-934-3342.

· Savings and Loan insurance is a separate fund under the management of FDIC. It is backed by the federal government and insures accounts at savings and loan institutions up to $100,000.

· Uninsured Money -- Consumers who have uninsured money in a federally insured institution wait in line with other creditors and might receive stock or a portion of total, uninsured deposits.

· Brokerage Firm -- Protection is offered by regulations of the Securities and Exchange Commission. Security Investors Protection Corporation (SIPC) offers protection of $500,000 for every customer account in case of liquidation or bankruptcy of an SIPC firm. Cash or check limit is $100,000; the remainder may be securities. Some firms buy more insurance. Certificates of Deposit bought at brokerage firms usually are insured by FDIC. There is no insurance that guarantees safety of any specific company. SIPC does not protect against losses resulting from the rise or fall in market value of your investment.

· Credit Union-NCUA -- The National Credit Union Administration (NCUA) provides protection for $100,000 per base account. NCUA district office is located in Atlanta, Georgia and moves in immediately in a bankruptcy. NCUA pays depositors by check. Questions concerning NCUA may be answered by calling 404-881-3127. Questions can be directed to Mississippi Credit Union System, 981-4552. Always discuss problems first with the local institution.

Minimum Deposits

What is the minimum deposit required to open and maintain an account? What is the minimum required to earn the maximum yield and avoid service charges?

Convenience

How much effort is it to open, maintain, or close the account? Can this be done by phone, written correspondence, or automatic machine?

Charges

Are there one-time or periodic service charges? Are you charged for each deposit or withdrawal?

Other Services

Does the account provide additional benefits, such as check-writing privileges or the ability to transfer funds between accounts?

Types of Savings Accounts

• Individual -- owned by one person, an adult or a minor.
• Joint -- owned by two or more persons.
• Voluntary Trust -- can be opened by an adult in trust for a child or another person.
• Custodial -- similar to trust account except it is irrevocable and becomes property of the minor for whom it is opened.
• Landlord Trust -- an account made for the benefit of tenants whose lease-security deposits must be placed in such accounts.
• Fiduciary -- accounts opened by the administrators of an estate or a guardian for a minor or an incompetent person.
• Commercial Account -- offered by some credit unions (example -- Coffee Club Account for an organization).

Rule of 72

Measuring how rapidly your money grows, at a given interest rate, is called the Rule of 72. It provides an approximation of how long it will take to double your money.

Divide the rate of return into 72 and you obtain the number of years required to double your money at that rate. With figures based on interest compounded annually, savings at 6 percent double in about 12 years.

Collateral

Any type savings account is acceptable as collateral for loans.

Borrowing

An advantage of borrowing against a savings account is obtaining a lower rate than the current interest rate.

Signature Cards

Only those who have signed a signature card have access to a savings account. You can give power of attorney to another person to access your account by legal action.

Taxes

Interest earned on a savings account is taxable to the person whose Social Security number is on the account. The annual interest earned on the account is reported on Form 1099 before March 1 of the current year to the Internal Revenue Service.

Silent Savings

We can save "silently" in the forms of equity in real estate, cash value of a life insurance policy, pension funds, automatic reinvestment of dividends, and escalating market value of assets. The struggle of many families to make ends meet often centers around saving pennies by turning off the hall light. While this strategy should be continued, it is perhaps more important to examine your saving and spending habits. Develop the habit of saving, and review the saving instruments to get the highest interest.

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