| Common Savings and Investment Tools |
| Tool |
Where to find it |
What to look for |
Advantages |
Disadvantages |
Tax advantages |
| Savings accounts |
Banks and credit unions |
Interest rates, FDIC/NCUA Insured |
Safe (usually FDIC/NCUA guaranteed), easy to access, good for emergency fund |
Typically earns very low interest |
None |
| Money market accounts |
Banks and credit unions |
Interest rates, FDIC/NCUA Insured |
Safe (usually FDIC/NCUA guaranteed), easy to access, interest usually rises as interest rates rise, good for emergency fund |
Typically earns very low interest, may require higher minimums to open account |
None |
| Certificates of deposit (CD) |
Banks and credit unions |
Interest rates, terms, FDIC/NCUA Insured |
safe (usually FDIC/NCUA guaranteed), pays higher interest rate than savings and money market accounts, can lock in interest rate for the term of the CD |
not good for Emergency Fund because most charge penalty for early withdrawal |
None |
| Stock mutual funds |
Mutual fund companies or brokerages |
Management of fund, track record, company offering fund, investments in the fund |
Potential to earn a higher return than other types |
Greater market risk than other types |
Earnings may come from capital gains and dividends which have lower tax rates |
| Bond mutual funds |
Mutual fund companies or brokerages |
Management of fund, track record, company offering fund investments in the fund |
Potential to earn a higher return than other types |
Greater market risk than other types |
Only small amount of earnings may be taxed at lower rates. |
| Money market mutual funds |
Mutual fund companies or brokerages |
Management of fund, track record, company offering fund investments in the fund |
easy to access, interest usually rises as interest rates in the economy rise, good for emergency fund |
Usually low paying, not FDIC guaranteed |
None |
| Commodity indexes and other alternative investments |
Mutual fund companies or brokerages |
Management of fund, track record, company offering fund investments in the fund |
Potential to earn a higher return than other types |
Greater market risk than other types, higher risk than most investments |
Earnings may come from capital gains and dividends which have lower tax rates. |
| Individual stocks and options |
Brokerages |
Return is dependent on financial future of company and economy, and timing of buying and selling |
Potential to earn a higher return than other types |
Greater market risk than other types, higher risk than most investments |
Earnings may come from capital gains and dividends which have lower tax rates |
| Individual bonds and other fixed income |
Brokerages |
Return is dependent on financial future of company, timing of buying and selling. |
Potential to earn a higher return than other types |
Greater market risk than other types |
Only small amount of earnings may be taxed at lower rates. |
| Brokered certificates of deposit |
Brokerages |
Interest rates, terms, FDIC/NCUA Insured |
Safe (usually FDIC/NCUA guaranteed), pays higher interest rate than savings and money market accounts, can lock in interest rate for the term of the CD |
Most charge penalty for early withdrawal |
None |
529 College Savings Accounts
CollegeInvest |
Financial advisor or state-run 529 college savings program |
Return and risk depend on types of investments offered |
Potential to earn a higher return than other types |
Limitation of investment options |
tax-deferred and tax-free if used for qualified college expenses, CollegeInvest offers CO state tax deduction |
| Coverdell Education Savings Accounts |
Brokerages |
Return and risk depend on types of investments offered |
Potential to earn a higher return than other types, can be use for K-12 education as well as higher education |
Lower limits on contributions allowed |
tax-deferred and tax-free if used for qualified college expenses |
| UTMA/UGMA |
Brokerages and banks |
Return and risk depend on types of investments offered |
Potential to earn a higher return than other types |
Funds considered student owned, could reduce student aid |
a portion of earnings may be taxed at the lower, child's rate, depending on family income level. |
| US Savings bonds |
Banks and U.S. Treasury |
Should be in parents name if for college purposes |
Government guaranteed, higher return than money markets, fixed rate of interest |
Low, usually fixed interest |
State and local tax free |