What you need to know about saving and investing
Saving money is one of the most important life lessons we learn from a young age. It helps you reach your financial goals, secure your financial future, and protect you during uncertain times and emergencies. The earlier you start saving money, the more you see your money grow over time. The more your money grows, the more peace of mind you have.
You may have heard the smart way to grow your money is by investing in stocks, bonds or real estate. While those are great options, they do come with some risks. After all, stocks are unpredictable and can go up and down.
Following the economic impact of the COVID-19 pandemic, global stock markets witnessed a massive downturn. Many people lost the value of their investments; all while corporations cut jobs and salaries that lead to an increase in unemployment rates worldwide.
This brings up the question of what is considered a safe investment? Real estate might be an idea if you’re thinking of freezing your money into stone for the next 15–20 years. If you’re looking for a safer short-term option, banks offer a risk free-way to invest your money through interest bearing savings accounts, term deposits and certificates of deposits.
These options help you grow your money in different ways. It all depends on your financial goals and how flexible you are in keeping your money in the account you choose. How can you start investing your money today and which option is the right one for you? Don’t worry, we got you covered!
What is a term deposit?
With a term deposit, you invest your money for a short period of time. This can range from a month, to 3 months or 6 months and even up to a year. You typically earn an interest rate on a monthly, quarterly, or annual basis depending on your choice of commitment. The longer you keep your money, the higher the interest rate you receive. As your term deposit reaches the end of its maturity period, the bank automatically renews it for you if you’ve opted for that so you grow your money over time.
You’re expected to deposit a minimum amount of 5,000 JOD into your term deposit account. You can always add more than the minimum balance and can always top-it up if more money becomes available to you even before its maturity date.
One very important thing to be aware of is that if you choose to withdraw your money from your term deposit account before it matures, you’ll pay a penalty fee. The rule of thumb here is that you can stash away your money without needing it anytime soon.
Benefits of opening a term deposit
This is an easy way for you to start investing money for a short period of time. Whether you’re looking to buy a car in the next six months or you’re doing fixes on your home in the next year, a term deposit allows you to save and invest your extra cash.
Another benefit that comes with your term deposit account is the fixed interest rate. That means you’ll always know exactly how much you’ll make. If a term deposit rate decreases over time and your money is still stashed away, that won’t affect you at all, you’ll still be getting the same interest rate until the deposit’s maturity date.
A term deposit is perfect for unpredictable and uncertain times, similar to what we might be going through now with the COVID-19 pandemic. If unfortunately you lose your job or your paycheck is cut, having an investment like a term deposit will work as an emergency fund and if you need the money, you can always access it at a fee even before it matures by breaking the TD.
What is a certificate of deposit?
A certificate of deposit, or CD usually offers a higher interest rate than a term deposit and provides a more predictable return on your investment. A CD is a good investment instrument for a long-term goal and can be activated with a time frame of a minimum of 3 months and up to 1 year. This means you can save money for your children’s education fees or even save for a down payment on a house.
While a CD has a fixed rate, meaning you can always predict how much you’ll be getting in return over a set period of time, it comes with rules too. Unlike a term deposit, you can’t liquidate your deposit and withdraw your money before its maturity date, but the higher interest rates make up for that!
Benefits of opening a certificate of deposit
CDs are a valuable option to grow your money while keeping it untouchable. It’s a great, low risk option if you have the means to lock it away for a long time. Your money is always safe, protected, and insured. You can always calculate and predict how much you’ll make and check on your funds anytime through your mobile banking app.
How a savings account works?
A savings account is similar to your regular current account, but in this case your money is growing as it incurs a small amount of interest over time. It also comes with added flexibility, so you can deposit and withdraw your money with minimal restrictions and penalty fees. While the interest rate you receive will change over time, you can still have some peace of mind that your money is working for you.
Unlike TDs and CDs, the money in your savings account is never frozen. You can deposit and withdraw your money if you urgently need it. This is also a great option if you’re new to saving money and need somewhere to start. You can start saving with any amount you deposit and expect to see your money grow every 6 months.
Benefits of opening a savings account
There are several types of savings accounts you can choose from that offer more interest than others. This can range from 0.125% to 1% and some are included in raffles on cash prizes. While they’re all geared towards growing your money, adopting a savings plan depends on your priorities, goals and financial planning.
You always have access to your money with a savings account. An excellent way to use this account is to save money for emergencies. So instead of dipping into your TD and liquidating it, you can always withdraw your money instantly through the ATM if you need to.
Unlike a CD, you can always add more money to your savings account. You can use it like a piggy bank to save and grow your money for your next summer vacation. And the great thing about it is that you’ll be getting paid in interest in the next few months.
Which strategy is the best for you?
This depends entirely on your current financial situation and future financial goals. Whether you have a sum of money that you want to lock up for a set amount of time or whether you want to start saving but would like to keep your money accessible in case of an emergency.
A good idea is to write down your goals. Calculate the money you’d like to save, how much it can grow over time, and how long you can keep it in the account without having to touch it.
How do I start?
If you have a Bank al Etihad account you can start by investing your money in a TD or CD through our mobile banking app. If you don’t have an account you can open one from your phone without having to step into a bank branch ever again.
