#002 - Savings Account

Investing in: A Savings Account 

     Risk: Very Low
     Return: Very Low
     Allocation: 10%

     The nature of life is that nothing is predictable and because of that you will always need to have money that you can access quickly. Unexpected expenses happen to everyone so we all need to be prepared. Money is relatively safe in a Savings Account so there is almost no risk of loss however the low return reflects the lack of risk. Every bank insures each person for $250,000 at each bank that they do business with so even if the bank fails you will get your money. This should be the basis of any good wealth strategy and the first place you can go for emergency funds. The real difference between building wealth and just saving is that the goal here is to never spend this money. If you hit $1000 in your savings account and are just itching to use it to buy that fancy new bike or shiny video game system that just came out you are doing it wrong. For any long term project you should start with a solid foundation and that is what this is.

Risk - Under $250,000 there aren't any risks to investing in a savings account. Go get one.

Return - The highest yield in a savings account that I have seen is 4% during really high economic times. Right now the best I have seen is 0.76%. You aren't going to retire on it but 0.76% is better than 0%. Be aware however that the bank has the right to change the interest rate on your account at any time. Still every penny you make now is compounding into the future so get the best rate you can.

Allocation - Different people will tell you different things when it comes to how much you should have in your savings account. The only thing everyone agrees on is that you should have some. I am allocating 10% of my funds to a cash savings account. At my current level of investing that is a very small amount to have in liquid funds and I do not suggest such a low amount for everyone. Personally I would consider 3 months worth of living expenses to be a fair balance for savings however because I am chasing returns I am accepting the risk involved with having a much smaller amount emergency cash.

Suggested - You can pick any bank you like. I have been with ING Direct for a few years and their yield seems to be close to or the highest that I can find at any one time. Recently Capital One bought out ING and nothing has changed so far but I am keeping my eye on it. Check them out at http://capitalone360.com .