How to make your savings earn more

By Maui V. Reyes by Yahoo! Southeast Asia

Think you’re savvy when it comes to handling your money? While you may be a proud owner of a savings account and diligently add a percentage of your savings in it, chances are, you’re not making your money earn as much as it can.

Here are other ways to grow your hard-earned cash beyond the interest rate that your ATM card can give.

Savings account. You most probably already have this (if you don’t, get thee to a bank real quick and open one!). Savings accounts are the safest interest-earning accounts you can have, since each bank has a fixed interest rate for them. Some people even open several accounts for different purposes—one for their office payroll, another to save money for a new car or house, etc. It might not be wise to use your savings account to pay for your rent, bills, and groceries, though: use a checking account for these. The idea of having a savings account is that you have money set aside in case of emergencies.

The upside to a savings account is that you can deposit and withdraw money from it anytime you want—plus you’re insured by the Philippine Deposit Insurance Corporation for up to P500,000. The downside is that interest rates are really, really low.

Money markets. A money market is sort of like a savings account, that it earns interest over time, however, you can’t simply withdraw money when you want to, depending on the money market you invested in. Money markets are basically IOUs by governments, financial institutions, and companies. They’re mostly safe, and while the interest rates fluctuate, are generally low-risk. However, financial institutions issue some money markets, so you may not be insured. If you feel confident with the money you have in your savings account and have extra to spare, investing in money markets is a good idea.  

Certificate of Deposit. Ever heard of a time deposit? Unlike savings accounts, a certificate of deposit or special deposit account holds your money for a specific amount of time—and you can’t withdraw it within that period. Doing so will incur penalty fees. Certificate of Deposits are great to have when you have money you generally don’t need to use right away: simply invest in a time deposit or SDA for a few months, and watch your money grow. Certificate of deposits have higher interest rates than saving accounts. Essentially, the longer you agree to keep your money in the account, the more money you’ll earn. And unlike money markets, you know exactly how much your return of investment will be, since certificate of deposits have fixed interest rates. You’re also insured by the PDIC.

Mutual Funds. A mutual fund is a combination of several stocks, bonds, and other financial instruments, which are owned by several people. Basically, a mutual fund has a goal of reaching a specific level of return of investments. So, if your goal is to earn 10% from your money, you invest in a portfolio that’s made up of maybe some stocks, some bonds, and maybe equity securities—all of which can meet your return of investment goal. These could be made up of a mix of high and low risk investments, depending on how diverse your portfolio is.

Bonds. These are contracts between you and a company—it may be issued by the government, or by top corporations. You’re basically “lending” money to the government or corporation, and they’re legally obligated to pay you back for that loan, and with a big interest, to boot!

Interest rates are usually calculated on face value of the bond, over a certain rate and fixed period of time. Bonds are long-term investments (we’re talking up to ten years!), and you usually have to purchase a minimum number to get in on the game. You’ll also need a financial adviser to help you out, as he or she can let you know of the company’s credit rating to see if they’re able to pay you back.

Here’s a piece of advice: have a chat with your bank manager and find out what your best options are. Bank managers are trained to explain their services to even the most financially ignorant person, so don’t be shy if you feel like you’re drowning in money jargon.