Wednesday, October 17, 2007

Lessons for My Daughter on SAVING

When I was very young, my parents opened a savings account for me at a nearby bank. I guess I was taught early to save. Now that I'm an adult, I know that just putting money in the bank is not enough because inflation is going to eat away the earning power of your money.

As a parent, I hope to teach my daughter how to handle her money well. We're the adults now. So we've started talking to her about money. Of course make sure you explain things appropriate to their intellect. For example, I tell my 4 year old daughter that we can't buy everything she wants in the toy store. We tell her we have to save money for the next trip to see Mickey at Disney. She's beginning to think about money at an early age.

Saving money in a bank is not enough because most big banks just give really puny interest rate -- around 1% or less. It's crazy!! Don't be a sucker- make your money work harder. Savings accounts are good for parking your money that you need very soon. If you need the money within 1 year, keep it in a savings account. 2 years? yes. Don't risk money you cannot afford to lose.

Need the money 3, 4, or 5 years away? Let's think about that.

Instead of just a POSA, plain-old-savings-account, you should at least look into opening an account at a reputable online bank. These online banks offer much higher rates, almost 5%. That's because the online banks have few employees, no pensions, and no leases to pay. So they pass the savings to you. ING Direct is one bank to park your savings into. Avoid POSA's.

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