TYPES OF SAVINGS
Chapter 6 TYPES OF SAVINGS
1. Savings Account
• A bank account which pays interest on the money deposited.
• Banks offer a variety of savings accounts which usually do not charge a monthly fee, however it is common to pay transactions fees.
• They do pay more interest than chequing accounts.
• Like chequing accounts, you have ready access to your money.
2. GIC (Guaranteed Investment Certificate)
• An investment where the interest remains the same for a set time.
• You buy it for a set period of time, called a term, and at the end it comes due or matures.
• You do not have access to the money until the GIC matures.
• You are paid more interest than a savings account pays.
• The interest rate varies depending upon the term.
3. Mutual Funds
• A large collection of stocks and/or bonds owned by many people, who purchase units and are administered by a fund manager
• These collection of stocks trade on the stock market
• It is possible to earn more money buying mutual funds, and stocks in general, than buying GICs. However, you also risk losing money.
• Although you can sell mutual funds at any time, buying mutual funds, or any stocks, is not recommended for short-term savings.
|Type of Savings |Rate of Return |Risk |Accessibility |
| | | | |
|Savings Account |Very Low |None |anytime |
| | | | |
|GIC |Low |None |Locked in for term (1 yr, 3yrs, |
| | | |etc.) |
| | | | |
|Mutual Funds |Low – High |Low – High | |
| | |(depending on type of mutual fund) |anytime |
Advantage and Disadvantage
Savings Account ( have access to your money, but there are transactions fees.
GIC ( you earn more interest, but there is no access to money until term is up.
Mutual Funds ( more money could be made, but you risk losing money as well.
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