This section will point out some of the things you should look for when picking a savings facility. It will not discuss each facility in detail, but will simply indicate the criteria that you should use in evaluating the different savings facilities.
Safety The most important criterion against which to judge every savings plan is the safety it will provide for your principal. You must ask yourself how sure you are that every cent you put in will be safeguarded and returned to you. Government bonds are clearly the safest investment you can make, with the savings accounts of the chartered banks following as a close second. While essentially a safe investment, mutual funds are near the other end of the scale as they give no guarantee of return of principal; your mattress, or the jug on your kitchen cabinet, provides the lowest safety of all.
Earnings Another important criterion in evaluating a savings facility is the earning you will receive on the principal you have invested. Some facilities, such as bonds, guarantee a fixed level of earnings over the life of your investment. Other facilities, such as banks and credit unions, reserve the right to change the rate of interest on your investment at will. Some savings facilities, such as mutual funds, guarantee nothing, relying on past performance to indicate what you may expect to receive. Mutual funds allow your earnings to compound automatically by reinvesting your interest each year as it comes due. Other facilities, such as bonds, do not provide automatic reinvestment for small amounts; you must do the reinvesting yourself.
Special services provided In addition to safeguarding your money and paying you interest, some savings facilities will also provide you with a host of useful services at no cost. By establishing an account at a bank, you have access to advice from the staff on a great variety of matters, and you may use the bank for borrowing. A chequing account in a bank will also provide you with monthly, or more frequent, statements and all your canceled cheques to use as receipts if you need them.
Convenience Banks and trust companies lead the other savings facilities in the convenience they offer the saver. Small amounts may be saved or withdrawn and may be transferred to other
people by means of a cheque. Other conveniences which you should check before you finally decide which savings facility to use include the hours of operation, the acceptance of deposits by mail, and the speed with which deposits and withdrawals may be made.
Liquidity The speed and ease with which you can transfer your savings into cash is known as liquidity. Most savings facilities provide immediate liquidity but some, such as life insurance and
large amounts in a post office savings bank, involve a delay of a few days. This delay could work to your advantage by giving you an opportunity to reconsider your decision to withdraw your money. Some saving facilities, such as government annuities, will not allow you to withdraw any of your money except as an annuity under any conditions. Insurance plans will supply cash only if you have built up cash values. On the other hand, chequing accounts in commercial banks, credit unions, and trust company savings accounts have immediate liquidity.
Charges Some facilities charge you for saving or withdrawing your money. The mutual fund and the guaranteed saving certificate have acquisition charges, and banks charge you for the cheques you write according to the balance you have in your account and the type of account you have. When you choose your savings facility, make sure that you are receiving value for these charges and that you could not receive much the same service elsewhere with a smaller charge or at no charge at all.
