Best interest rates for savings
PREFACE:
Almost all the Commercial Banksand many financial Institutions in United States are offering savings accountsto their customers. Revision of cashinto short term instruments of money markets to make use of the surpluses ofcash for earning positive return and switch back into cash to meet liquidityneeds is the main objective of Financial Institutions operations. A Money Market savings account offers a higher interest rate thana regular savings account, plus the liquidity, flexibility and accessibility ofa checking account
I. SAVINGS ACCOUNT:
It is seen that most of the Bestinterest rates on savings are offered by High Street Banks are limited tocertain groups such as pensioners, loyal customers or those who are willing toaccept restrictions but there are good deals if efforts are made can get asummary of some of the market leading savings rates available and compare over4000 different accounts, to see who offers the highest interest on savings. It is very crucial for money to work as hardas it can and it is important to make sure every pound is earning as much as itcould. Savings are not going to grow very much if it is left lying unused in alow interest account. Best interestrates on savings are not going to grow very much if it is lying idle in anaccount which pays only 3 percent. Themost important criteria when looking for the best savings accounts are good rates of interest and easy access to money when we need it. Reinvestment is just like fixed deposits with the difference thatdeposits are accepted for a fixed period ranging between 12 and 120 months andinterest though calculated periodically is payable at the time of maturity. This plan provides for the reinvestment of interest also. In case ofpremature withdrawal or renewal under such plan, compound interest withquarterly rests at prescribed rate is to be allowed.
II. MONEY MARKET RATES:
Money market has no geographicalconstrains and relates to all dealings in money or monetary assets. Moneymarket is a center where borrowers and lenders of money and near money assetsare put together. It may comprise of a group of such markets for various typesof money assets characterized by relative liquidity or nearness to money.. Thefinancial institutions dealing in these assets may be spread over so wide ageographical area that it would be impossible to specify the geographicallimits of the market.
The main instruments traded inthis market are treasury bills, clean and L.C. bills, commercial bills andCertificates of Deposits etc.Theexpertise of management lies in selecting the right mix of assets consistentwith funds position and market conditions. A well developed market would satisfy both the criteria of integrationand specialization. If the market is well integrated, the flow of funds betweensub-markets will be free and quicker, increasing thereby the value oftransactions. Specialization is a natural result of the growth of the market,as the specialist is bound to emerge as soon as a sufficient demand developsfor his services.
Advantages of mature money market:
The advantages of Mature MoneyMarket Rate are multifold. The gaps between the separate sub markets canbe bridged by operators through arbitrage operations which lead to a singleprice for each category of assets. Secondly, it facilitates the profitabledeployment of surplus funds of banking institutions. Thirdly, where money market iscompact and integrated the control by the central bank would be easier. The centralbank action would percolate quickly from one segment to another of the marketand be more effective.
Fourthly, a developed moneymarket helps promote certain attitudes and practices by bankers regarding themaintenance of minimum reserves and cash. Money Market Rate provides a buffer between cash or liquidityand long term high return investments in the stock and capital market.
III. CASH CERTIFICATES:
These certificates are issued with different face valuespayable after specified maturity periods. The issue prices for differentmaturity periods are specified in advance. For example, one can get acash certificate with face value by paying its discounted value. Thus interestis payable on maturity.
There are some more schemes like,
a) Deposit scheme with multi option which providesliquidity to term deposits and under this scheme, the term deposits areaccepted in conjunction with savings bank or current account or both. Thefacility of withdrawal is permissible in units through savings bank accountwithout attracting any penal rate of interest. The remaining amountcontinues to earn interest at contracted rate.
b) Savings account linked withfixed deposits which specify the maximum amount in savings bank account beyondwhich the balance is to be automatically transferred to a fixed deposit accountthe maturity of which is decided.
c) Fixed deposit schemes for senior citizens, the banksoffer higher and fixed rates of interest when compared with normal deposits. These schemes also incorporate simple procedure for automatic transfer ofdeposits to nominees of such depositors in the event of death.
IV.CERTIFICATES OF DEPOSIT:
Acertificate of deposit resembles a time deposit with the difference that theformer is negotiable while a time deposit is not. Certificates of deposits evidence receipt ofmoney by the bank and also carry the Banks guarantee for repayment ofprincipal and interest.
Certificatesof deposits are issued payable to bearer and therefore can be traded in thesecondary market. Most Certificates ofdeposits in Euro currency market are in dollars and few in sterling andyen. The minimum denomination is USD 50,000and normally, they are issued for periods up to one year.Certificates of deposits provide anexcellent avenue for Banks who would like to keep the liquidity and earninterest at the same time. For exampleif a bank feels that it can afford to invest for about six months it canpurchase Certificates of deposits for this period. If need arises Certificates of deposits canbe sold in the secondary market and funds recouped.
V. TYPES OF CERTIFICATES OF DEPOSITS:
A)The most common type of Certificates of Deposits is straightor taps Certificates of Deposits. Theybear a fixed rate of interest and have a fixed maturity date of 1 to 12months. Interest is normally fixed at1/8 per cent below London Inter Bank offered rate at the time of issue. In individual cases the interest fixeddepends upon the credit standing of the issuing bank and liquidity position inthe market.
B)Floating Rate Certificates of Deposits are issued withmaturities up to three years. Interestis adjusted every six months at ? per cent over the prevailing London InterBank Offered Rate. Floating RateCertificates of Deposits are therefore more beneficial to investors whencompared with a straight Certificates of Deposits for six months rolled overthree years. Interest is paid semiannually.
C)Tranche Certificates of Deposits are issued with maturitiesup to five years. They carry fixed rateof interest. Each tranche Certificatesof Deposits carries the same rate of interest and matures on the samedate. Usually they are placed directlywith investors rather than offered publicly to the market. In many respects therefore they representshort term Eurobonds.
D)Discount Certificates of Deposits are issued at a discountand are paid at maturity for their face value, the difference representing theinterest for the period. Interestcalculation is similar to that for treasury bills or bankers acceptances. Initial issues were for a period of one ortwo months at the option of the lender.Therefore, Money Market savings account offers a higherinterest rate than a regular savings account, plus the liquidity, flexibilityand accessibility of a checking account.
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