Health savings accounts (HSAs) are wildly popular. Since their introduction in 2004, approximately 2.5 million Americans have enrolled in these so-called consumer-driven health plans. But, alas, HSA plans are not for everyone.
Here are some pointers to help you consider whether an HSA will benefit you and your family.

1. An HSA plan can cut healthcare costs by an average of 40% for many people.
Nevertheless, some people will not realize any net savings. Those most likely to realize significant savings are people who pay all of their own health insurance premiums, such as the self-employed, who are relatively healthy with few medical expenses.

2. health savings plan restores freedom of choice.
An HSA plan puts individual consumers back in control of their own health care. This also means that each individual must be more responsible for his or her own health care decisions. This approach of self-reliance is not always popular with or appropriate for everyone, especially those who have become comfortable with HMO-type “co-pay” plans.

3. Health savings accounts reduce income taxes.
Every dollar contributed into your HSA account is deducted from your taxable income in the same manner as contributions into a traditional IRA account–regardless of whether you spend it or just save it. Interest and investment earnings in a HSA accumulate tax-deferred, just like a traditional IRA. Unlike an IRA, withdrawals are tax-FREE when used to pay qualifying medical expenses. In many situations, new account holders are able to almost fully fund their HSA with money saved on premiums from a prior, higher priced plan. By stashing all or most of those savings into an HSA, the account holder realizes instant, additional savings in the form of reduced taxes.

4. You must have a properly qualified high health insurance policy in place first before
you can open a health savings account. One of the biggest misconceptions about HSA plans is that any insurance policy with a high deductible will qualify the policyholder to establish an HSA account. IRS regulations, however, are quite specific. Not just any policy with a so-called “high deductible” will suffice. It is important to be certain that you are insured under a properly qualified policy. Your best bet is to work with a qualified and duly licensed health insurance broker who is experienced in marketing properly qualified HSA plans.

5. You must be insurable in order to qualify for the HSA-qualified health insurance policy.
Because most people do not have a properly qualified high deductible insurance policy, they will need to switch insurance plans in order to become HSA-eligible. Unless coverage is being offered under small group reform laws (generally groups with 2-49 employees), the new high deductible policy will be individually underwritten by an insurance company. This means that some “pre-existing” conditions may not be fully covered. Alternatively, some companies may opt to cover certain “pre-existing” conditions in exchange for slightly higher premiums. Unfortunately, some health conditions simply render an individual uninsurable (examples: diabetes, chron’s disease, heart attack, etc.). Underwriting requirements vary by state, which is another reason to rely on an experienced health plan broker.
You should not switch to a HSA plan when the management of existing medical expenses is more important than saving up-front medical insurance premiums. Do not change health plans: in the middle of ongoing medical treatments; after a major health issue has been diagnosed; or if any family member is pregnant.
Generally, it is relatively hassle-free to qualify, i.e. no medical exams, etc. Most insurance companies offering HSA coverage will issue based on your application answers, perhaps accompanied by a follow-up telephone interview. In some cases, medical records may be requested, and companies always reserve the right to order a paramed exam.

6. Although HSA insurance premiums are low, they are not always as low as you might expect.
This happens for one main reason. Simply stated, the underlying insurance policy is just thata health insurance policy. Although it has a “high” deductible, as required by law, the insurance company still must compensate for the risk it is assuming over the deductible amount, which it does by charging premiums. Many companies offer policies with one deductible that all family members contribute toward. With those plans, it is not uncommon for premiums for a 5000 family deductible with 100% coverage after the deductible to be comparable to a 2500 “per person” deductible plan with 80/20 coverage after the deductible.
Lower premiums represent just one element of the lower net cost achieved with an HSA plan. The low net cost of an HSA plan is achieved after factoring in the benefits of lower taxes, made possible by the tax-deductible contribution to the HSA account. Thus, if obtaining the lowest possible gross premium is your main concern, you may wish to consider a high deductible, non-HSA policy, especially if you do not see the benefit to contributing to a tax-deductible savings account.

7. An HSA offers your best chance to keep a lid on health insurance rate increases.
Make no mistake-you will have rate increases with your HSA insurance policy. Because an HSA qualified policy is still a health insurance policy at heart, there is no logical reason to presuppose that an HSA policy would be immune to rate increases required by an insurer to keep paying claims and stay in business. But what you can expect is that the actual dollar amount of any future rate increases will be substantially lower compared to traditional health insurance plans (regular PPO and HMO plans). This is true because insurers base increases on percentages, and the same percentage of a lower base premium results in a lower dollar increase. It’s not a perfect solution-but it is the most cost-efficient solution for many qualified people.

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I was having considerable problems getting a mortgage to buy my first home about four years ago. If I was to believe everything I had heard, I was the ideal candidate for a mortgage – young, a first-time buyer and with an annual income of about 30k. Easy!

No, not easy, actually. Being young with a leaning towards enjoying myself, I had no savings – nothing to use as a deposit. But what about these 100% mortgages I had been hearing about? Surely I qualified? Oh, there was something else – I was also self employed with no accounts.

Self employed with no accounts and no savings.

Could I get a mortgage? It was virtually impossible. Not a single High Street lender would give me a mortgage. Even my bank who have had my services for ten years turned me down; even though my bank knew exactly how much I earned each year and how much I spent each week; even though my bank knew that making the monthly payments on a repayment mortgage would not be an big problem for me.

Then I heard about Self Certification Mortgages.

What is a Self Certification Mortgage? It’s essentially a mortgage whereby you decide whether or not you are capable of making the repayments. And that is when the penny dropped, because you see the entire process of applying for a mortgage is premised upon an institution (such as your bank) deciding whether or not you are able to make the monthly repayments.

And what is the formula for working this out? Well, if you are employed it is your salary – a bank will lend you, say, 3 or 4 times your annual salary. Normally they will ask you for a small deposit, say 5%, to demonstrate that your intentions are serious.

Obviously, if you are self employed, and particularly with no accounts, you often do not have an annual salary and you are unable to demonstrate regular monthly income. Many self employed people – notably me – live hand-to-mouth, regularly waiting for reluctant clients to settle outstanding invoices. So how can your ability to repay a mortgage be judged? I discovered that self certification was the answer – i.e. YOU. You make a judgement as to whether or not you are borrowing too much money and whether or not you will be able to afford the monthly repayments. After all, if you are bright enough to run your own business, manage your own tax affairs, handle purchasing and invoicing, surely you are bright enough to work out whether you can repay your mortgage!

Think about it – conventional, salary-based mortgages are judged on the basis of what a person has earned in the past, but a person could be made unemployed within hours of securing a mortgage. On the other hand, Self Certification puts the onus on you predicting what you will earn in the future. Sure, you could go out of business, but a salaried person could also lose their job.

So I thought, well this is good, but I bet that a Self Certification Mortgage is the stuff of loan sharks, with huge interest rates, crushing monthly repayments and Guantanemo-style penalties.

But there was something else I discovered about mortgages. Although the High Street is swamped by lenders, there are only actually a very small number of ‘actual’ lenders: the majority are intermediaries acting on their behalf, because the number of mortgage applications is so great that intermediaries are required to perform the process of judging each applicant and assessing risk.

So I discovered that whereas a High Street lender would turn me down, a smaller lender might accept me. But get this: the mortgage that I actually received from the small lender at the end of the day was exactly the same as the mortgage which had been refused me by the High Street lender! Only the forumla for judging my ability to repay the mortgage was different, not the mortgage itself!

So what’s the catch with Self Cerftification? There is always a catch in my experience, and in this instance it was a very big catch. Whereas a regular mortgage requires the borrower to contribute a deposit of, say, 5%, my Self Certification Mortgage required a deposit of 15%. Fifteen percent!! Of course I can see why they ask for this, why if you are not being judged using the conventional formula you are expected to show some serious committment. But I didn’t have any savings. I was young and self employed for crying out loud.

So what did I do? Okay, I would not recommend this to everybody, but I was desperate for my own home and I knew that I could afford the repayments. I took out a Personal Loan shortly before my mortgage application and, supplemented with a timely invoice payment, I was able to pay the deposit and afford the key refurbishment costs on the property (roof, re-wiring, plumbing etc).

On the High Street this would be called a Home Improvement Loan and acquired AFTER you have obtained a mortgage and purchased the property. I simply borrowed a little more in the form of a Personal Loan before I had acquired a mortgage. I was fortunate in that I could afford to carry the costs of these repayments for the forseeable future and I had bought on a rising market – the value of my property was already more than the mortgage and personal loan combined before I had even finished the refurbishment (ie. 4 months after buying the property). I would not recommend this to everyone, and you have to be very, very clear about how much you are borrowing and what the total repayments will be.

However, getting on the property ladder and having my own home was the most important thing to me, and it just goes to show that if you look beyond the High Street you can actually find the same or similar financial products but with less of the hassle. The High Street had always made me feel inadequate, a financial failure

You might be interested to know that, because I was still looking for the catch in my Self Certification Mortgage, I went to a respected, independent financial advisor recently (on the High Street as it happens) and asked if I should change my mortgage to something better. His advice was that I had got a very good mortgage deal and that I should stick with it for the forseeable future. So I have.

Richard

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100% of the deposit you place in your HSA is deductible on your federal income taxes. All but four states also make HSA contributions tax-deductible on state income taxes. If you are looking to reduce your 2006 tax burden and put away more money for retirement, your HSA is the first place you should put your money if you have not yet maximized your contribution.

The maximum you can contribute to your HSA in 2006 is the lesser amount of your deductible, or $2,700 for singles and $5,450 for families. Individuals who are 55 or older may contribute an additional $700. Note that contribution limits are pro-rated, based on the number of complete months during the year in which you have a qualifying HSA health insurance plan.

You have until April 15 (or later if you file for an extension) to make your 2006 contribution. If you do not fully fund your account for the current year, you cannot make a catch-up contribution for 2006 after this deadline. However, you can reimburse yourself in later years for qualified expenses incurred in 2006, even if you do not have the funds in your account to reimburse yourself at this time.

In 2007, the maximum annual HSA contribution will go up to $2,850 for individuals and $5,650 for families. Individuals 55 or older will be allowed to contribute an additional $800.

To maximize your tax benefit for 2007, it is important to have your HSA-qualified health coverage in place no later than January 1.

In order to pay for a medical expense from your HSA, it must be a qualified expense. Some of these qualified expenses include dental expenses, eyeglasses, chiropractic visits, over-the-counter medications, and sometimes even nutritional supplements.

Now is a good time to make sure you have an accurate record of your medical expenses for the year. Make sure you separate the expenses for which you have reimbursed yourself from your HSA from those that you paid for out-of-pocket. You’ll want to keep receipts for all medical expenditures paid from your HSA with your 2006 tax records. Place the “non-reimbursed medical expenses” in a separate file, keeping them with the concurrent year’s tax records in whatever year you decide to reimburse yourself.

The penalty for over-funding your HSA is a whopping 6%. You have until April 15, 2007 to withdraw excess funds for the 2006 tax year to avoid the penalty. Your HSA administrator may notify you of any over-funding, but they are under no obligation to do so. It is your responsibility, so make sure you check into this if you think your may have over-funded you account.

The minimum deductible for HSA-compatible health insurance plans in 2006 was $1,050 for individuals and $2,100 for families. In 2007 this will increase to $1,100 for individuals and $2,200 for families. If you currently have an HSA-qualified plan with the lowest eligible 2006 deductible, that deductible will automatically go up on January 1 to the new minimum.

Strategies to Maximize Your Tax Benefits

There are basically three different strategies you can take when deciding how to fund your health savings account.

1. Put no money in the account, except when you incur a medical expense. This strategy allows you to legally “launder” any money used to pay medical expenses. In other words, by depositing money into your HSA, then immediately withdrawing it to reimburse yourself for medical expenses, you are making your medical expenses all tax-deductible. You may want to use this strategy if you are on a tight budget and want to keep your cash outlay as low as possible.

2. Fully fund the account, or at least put in as much as possible based on your budget. Take money out of the account any time medical expenses are incurred, and let the rest grow tax-deferred. This strategy will maximize your tax deduction, while making your HSA funds available to pay any non-covered medical expenses before your deductible is met.

3. Fully fund the account, but pay all medical expenses from a non-HSA account. Reimburse yourself for medical expenses at a later date. This strategy will allow you to maximize your tax deduction, and will also allow you to maximize the tax-deferred growth of your HSA. You can then reimburse yourself, tax-free, at any time in the future for medical expenses incurred over the ensuing years.

To maximize the potential growth of your funds, you may want to make your 2007 deposits as early in the year as possible. Any growth in your account is tax-deferred, like an IRA. If possible, you should plan to make your deposit the first week in January.

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The biggest reason more people don’t retire before age 65 is lack of health insurance, and many Americans reach age 65 woefully unprepared for the medical expenses they’ll face once they do retire. One of the most important long-term reasons for establishing an HSA is to build up some money for medical expenses incurred during retirement.

Fidelity Investments reports that the average couple retiring in 2006 will need $190,000 to cover medical expenses during retirement. This assumes life expectancies of 15 years for the husband and 20 years for the wife.

HSAs are, without exception, the best way to build up money to pay for medical expenses during retirement. You should not contribute any money to your traditional IRA, 401 (k), or any other savings account until you have maximized your contribution to your HSA. This is because only health savings accounts allow you to make withdrawals tax-free to pay for medical expenses. You can take these distributions anytime before or after age 65.

Your HSA contributions won’t affect your IRA limits — $3,000 per year or $3,600 for those over 55. It’s just another tax-deferred way to save for retirement, with the added advantage being that you can withdraw funds tax-free if they are used to pay for medical expenses.

For early retirees who are healthy, a health savings account can also be a smart option to help lower their health insurance costs while they wait for their Medicare coverage. The older someone is, the more they can save with an HSA plan. For many people in their 50’s and 60’s who are not yet eligible for Medicare, HSAs are by far the most affordable option.

Any money you deposit in your health savings account is 100% tax-deductible, and the money in the account grows tax-deferred like an IRA. For 2006, the maximum contribution for a single person is the lesser amount of your deductible or $2,700. In other words, if your deductible is $3,000, you can contribute a maximum of $2,700; if your deductible is $2,000, then that is the maximum. For families, maximum is the lesser of $5,450 or the deductible.

If you’re 55 and older, you can put in an extra $700 catch-up contribution in 2006, $800 in 2007, $900 in 2008, and an additional $1,000 from 2009 onward. The contribution limit is indexed to the Consumer Price Index (CPI), so it will increase at the rate of inflation each year.

How much you accumulate in your HSA will depend on how much you contribute each year, the number of years you contribute, the investment return you get, and how long you go before withdrawing money from the account. If you regularly fund your HSA, and are fortunate enough to be healthy and not use a lot of medical care, a substantial amount of wealth can build up in your account.

Health savings accounts are self-directed, meaning that you have almost total control over where you invest your funds. There are numerous banks that can act as your HSA administrator. Some offer only savings accounts, while others offer mutual funds or access to a full-service brokerage where you may place your money in stocks, bonds, mutual funds, or any number of investment vehicles.

One of the biggest advantages of retirement accounts like HSAs are that the funds are allowed to grow without being taxed each year. This can dramatically increase your return. For example, if you are in the 33% tax bracket, you would need a 15% return on a taxable investment to match a tax-deferred yield of only 10%.

As another example, if you are in a 33% tax bracket and were to invest $5,450 each year in a taxable investment that yielded a 15% return, you would have $312,149 after 20 years. If you put that same money in a tax-deferred investment vehicle like an HSA, you would have $558,317 – over $240,000 more.

Because catch-up contributions are allowed only for people age 55 and older, if one or both of you are under age 55 you should establish your HSA in the older spouse’s name. This will allow you to capitalize on the expanded HSA contribution limits for people in this age range and maximize your HSA contributions. Once that person turns 65 and is no longer eligible to contribute to their HSA, you can open another health savings account in the younger spouse’s name.

Strategies to Maximize your HSA Account Growth

If your objective is to maximize the growth of your HSA in order to build up additional funds for your retirement, there are three important strategies you should implement.

Strategy #1: place your money in mutual funds or other investments that have growth potential. Though this is riskier than placing your money in an FDIC-insured savings account, it is the only way to really take advantage of the tax-deferred growth opportunity that an HSA provides.

Strategy #2: delay withdrawals from your account as long as possible. Though you may withdraw money from your HSA tax-free at any time to pay for qualified medical expenses, you do have the option of leaving the money in the HSA so that it continues to grow tax-free. As long as you save your receipts, you can make medical withdrawals from your account tax-free at any future date to reimburse yourself for medical expenses incurred today.

As an example, let’s say a 45 year old couple places $5,450 per year in their HSA over a period of 20 years, they have $2,000 per year in qualified medical expenses, and they get a 12% return on their investments. If they withdraw the $2,000 from their HSA each year, they’ll have a net contribution of $3,450 per year into their account, and they’ll have $248,581 in their account when they begin their retirement years.

If on the other hand they delay withdrawing that money, they will have $392,686 in their account at age 65. If they choose they can withdraw the $40,000 to reimburse themselves tax-free for the medical expenses incurred during that 20 year period, and still have $352,686 in their account – over $100,000 more than if they had withdrawn the money each year.

Strategy #3: make the maximum allowable deposit to your HSA at the beginning of each year. Even though you are allowed until April 15 of the following year to make deposits to your HSA, you should take advantage of the tax-free growth in your account by funding it as soon as possible. The extra interest you can earn by contributing to your account on January 1 of each year rather than the next April 15 can amount to over $40,000 in a 20 year period, and over $100,000 in 30 years.

Using Your HSA to Pay for Medical Expenses during Retirement

When you enroll in Medicare, you can use your account to pay Medicare premiums, deductibles, copays, and coinsurance under any part of Medicare. If you have retiree health benefits through your former employer, you can also use your account to pay for your share of retiree medical insurance premiums. The one expense you cannot use your account for is to purchase a Medicare supplemental insurance or “Medigap” policy.

Though Medicare will pay for the majority of health expenses during retirement, there many be expenses that Medicare will not cover. Nursing home expenses, un-conventional treatments for terminal illnesses, and proactive health screenings are all examples of medical expenses that will not be paid for by Medicare, but that you can pay for from your HSA.

Long-term care is assistance with the activities of daily living, such as dressing, bathing, or feeding yourself. It can be provided in your home, a retirement community, or a nursing home. Long-term care expenses can be paid for using funds from your HSA, and long-term care insurance can even be paid for from the HSA up to the following maximum annual amounts:

- Age 40 or under: $260
- Age 41 to 50: $490
- Age 51 to 60: $980
- Age 61 to 70: $2,600
- Age 71 or over: $3,250

To establish a health savings account, you must first own an HSA-qualified high deductible health insurance plan. Compare HSA plans side by side to determine the best value to meet your needs. Once you have your high deductible health insurance plan in place, you can open your Health Savings Account with the financial institution of your choice.

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The Medicare Trust Fund will soon be out of money, and there will be no practical way for the government to continue to provide the level of benefits that current Medicare recipients receive. The result will be serious rations, waiting periods, and a reduction in benefits. If you wish to maintain your medical freedom, and have access to a high level of medical service, you must be prepared to pay for it yourself. The best strategy is to take good care of your health, and to build up your medical retirement fund as large as possible by using a Health Savings Account.

The Coming Medicare Insolvency

The total federal debt is now over $10 trillion. But if you also include the current unfunded liabilities of social security, Medicare, and other programs, the total federal debt is at least $54 trillion. This number has been confirmed in three separate studies – by the American Enterprise Institute, the National Center for Policy Analysis, and the Brookings Institution.

It is difficult to get a grasp of a number that big. That’s $180,000 per person currently living in the United States. It is four times the U.S. Gross Domestic Product, the measure of the final value of all goods and services produced in this country in the course of a year.

As the program is currently structured it is unsustainable, and the fund is expected to be depleted by 2018. That is a mere 11 years from now. The shortfall in Social Security and Medicare revenues will continue to increase as the years go by – it will exceed $2 trillion by 2030. At that point, half of all tax dollars will have to go to Social Security and Medicare.

That clearly can’t happen. Instead, the system will face massive cuts in benefits, probably in addition to large tax increases.

Who Will Pay Your Medical Expenses During Retirement?

So will Medicare be there for you? It depends on how old you are. Unless you are retiring in the next couple years, I certainly wouldn’t count on it, particularly if you want to insure that you have access to high quality medical care during your retirement years.

Last year Fidelity Investments reported that the average couple retiring in 2006 would need $200,000 just to cover medical expenses during retirement. That estimate did not include the cost of over-the-counter medications, most dental services and, long-term care, if needed. And it did not include the charges that are currently paid by Medicare.

If we cannot depend on Medicare to be there for us, the only smart solution is to save as much money as possible. This will ensure that you can obtain the quality care you need. If you are not currently putting as much money as possible aside to pay for these expenses yourself, you are making a serious mistake.

What Is Your Solution?

As most readers already know, the very best tool for accumulating funds for future medical expenses is a Health Savings Account. An HSA is the only investment that provides a tax deduction when you deposit the money, yet never taxes the money if it is used to pay for qualified medical expenses.

Therefore, you should put as much money as possible into your HSA, and withdraw as little as possible. The contribution limit for 2007 is $2,850 for an individual, and $5,650 for families. Those over 55 can also contribute an $800 catch-up contribution. Making the maximum contribution each year will help you build a medical retirement fund that can be used to pay future medical expenses, tax-free.

Rather than withdrawing money from your account to pay for medical expenses as they occur, you should pay for medical expenses that are not covered by your health insurance, out of your own pocket. Save your receipts (for doctor visits, eye glasses, aspirin, etc), and leave your money in the account to grow tax-deferred. There is no time limit before you have to reimburse yourself, so you can make the most of this tax-free investment.

As soon as possible, you may also want to transfer some of the money into mutual funds. While some HSA administrators are paying interest rates as high as 5%, the only way you are going to really grow the account is to get a much higher return on your money. Many HSA administrators offer a discount brokerage option, so you can place your funds in virtually any stock or mutual fund.

For a family that contributes the maximum contribution each year, it is quite reasonable to assume an HSA account value well over $1 million after 25 or 30 years. Medicare may be broke, but at least you won’t be.

“Medicare HSAs?”

The solution to the pending Medicare meltdown is very complicated, but it is clear that government-run medical programs don’t work. The dismal results can be seen everywhere, from the former Soviet-bloc countries, to the broken down national healthcare systems of Canada and Europe. Medicare must be transformed into a program where seniors have an ownership interest in the money they are spending.

Replacing the government’s obligation to provide benefits with a voucher that seniors could use to purchase health insurance from competing private insurers, and/or deposit into a “Medicare Health Savings Account,” would bring market efficiencies and competition into the picture. This idea is endorsed by both the American Medical Association and the American Hospital Association.

Retirement HSAs may or may not ever come to fruition. But fortunately, HSA plans are available to those under age 65. If you do not yet have an HSA, get signed up for one now. You will lower your health insurance premiums, and can begin putting money aside for medical expenses you will almost inevitably incur during your older years.

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Savings accounts are the best idea for putting away a set amount of money each week or month depending on your circumstances. You would be surprised at how quickly this money can add up if you are contributing a set amount from your paycheck every payday.
When shopping around for the best savings account, find one that pays a good interest rate and has a minimal amount for opening the account. A lot of banks only require a dollar to open an account while others may want you to deposit anywhere from 5 dollars to 50.

The convenience of having money automatically withdrawn from your paycheck and placed in your savings account is great for some. However others may not put a set amount in each payday and may want to choose how much they deposit into their savings account.

The best type of savings account will pay a comparable interest rate, be easily accessible to your home or work, will not charge a fee for withdrawals from your account, has on-line availability, and does not require a large deposit to open. If you have a bank account and access it online you should be able to transfer money to and from your savings account. You should try not to transfer from it unless it is an emergency because this defeats the purpose of having the savings account in the first place.

Some types of savings accounts are geared towards the holiday season. This allows you to save money for Christmas. If you start it early enough in the year by the time Christmas rolls around you can have a nice amount for your holiday shopping.

Another type of savings account featured by some banks link your debit card with your savings account. Every time you make a purchase using your debit card the amount is rounded up to the next dollar and the extra is deposited into your savings account. Some of these banks will even match the amount deposited by a certain percentage.

Savings accounts are great ways to start your children out learning how to be responsible when it comes to money. Open a savings account and let them deposit birthday money or Christmas money for themselves. All the change that gets thrown in a jar every day can become a savings account deposit for them. They will love to go to the bank and deposit their own money and in the process you are teaching them the importance of saving.

Another advantage to a savings account is establishing credit. If you borrow money from your bank using the money in your savings to secure the loan, when you pay the loan back you will have established credit with your bank. This can make it easier to get an unsecured loan should you need it.

It is important to have a savings account and add to it regularly. For that unexpected expense that crops up, having the money to cover without having to borrow the money is great. With everything today being based on credit-worthiness, establishing a good relationship with your bank or credit union can make a big difference when it comes to buying a home or a car.

For more info visit
{open an online saving account}

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For those new to banking, a savings account is not the same as a checking account. They share some similarities, but at the core they are different.

In general terms, a savings account is a type of account that you can open at a bank or credit union. With this type of account, you deposit money into the account and leave it there in order for it to earn interest. You can, of course, take the money out of the account, but that defeats the purpose.

A savings account is a great way for some people to save money and to earn some interest off of that money. It is especially useful for those individuals who have limited amounts of cash to put away. Young people, especially younger married couples, often find that opening a savings account is the best way for them to save money. The reason for this is simple. Unlike some other types of investments which demand a certain amount of money be deposited or maintained at all times, a simple savings account allows you to deposit whatever you like, whenever you like.

Another reason a savings account is handy for those with limited funds is that the money you deposit into the account can be withdrawn immediately if you need to get it. Again, some other types of savings or investments instruments are not this fluid. Most savings accounts allow you to use the ATM as well, which offers even greater access to your money should an emergency arise. This is simply not the case with other types of accounts such as certificates of deposit or money market accounts.

Savings accounts are also safe for your money in two ways. No one should keep large amounts of cash at home; that is simply dangerous to do. The money could be stolen or if there were a fire, the cash could be destroyed. In both cases, you would completely lose your money with (probably) no way of getting it back.

The second safety feature that savings accounts have is that money that is deposited into a bank is protected by the Federal Deposit Insurance Corporation (FDIC) for up to $100,000. If the bank is robbed or the bank burns down, you will still have your money. Even if the bank files bankruptcy, your money is safe.

When you are ready to open a savings account do some homework first. You want to find out which banks are offering the best interest rates and deal with those banks. If you belong to a credit union, you may want to ask them what their rates are. Credit unions are more competitive today with their savings account rates than they were some years ago, so it is worth asking as they may offer a higher rate than the bank. You should also look into the minimum amount of deposit required to open a saving accounts. Some banks and credit unions require a certain amount be deposited the first time in order to set up the account.

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If you have a basic understanding of how savings and investments work, however, it will be a lot easier to make judgements about the reliability and efficiency of individual advisers.

Independent Financial Advisers

Usually you will not be charged for general advice, but the adviser will gain commission when he or she sells you particular products. Dont be afraid to ask about commissions a good adviser should be open and transparent about such matters. They are duty bound to find out all relevant information about you and then give best advice which means selling you the products that are most suitable for your situation.

Accountants

Accountants normally advise on book keeping and tax, but sometimes also give advice about investments. If involved with investing, they must belong to one of the Recognised Professional Bodies responsible for regulating their business. These include the Institute of Chartered Accountants and the Association of Chartered Certified Accountants.

Stockbrokers

If you are dealing on the stock market, you will need to buy and sell your shares through a broker. If you want advice on your investments, choose a traditional stockbroker. On the other hand, there are brokers that offer a dealing-only service, and this is a cheaper way to buy and sell shares. Stockbrokers charge a commission on deals, and a traditional brokers service should include advice. www.londonstockexchange.com provides detailed advice and ways to locate a broker.

The Financial Services Authority regulates all these professionals if you are unsure about the credentials or dealings of someone check with them to verify that they are legitimate and are operating fairly. The FSA website also has details of what to do if you are unhappy with the service youve received from a finance professional check www.fsa.gov.uk. Once again, the governments advice site has sound information on the basic principles and links to other information sites. www.direct.gov.uk

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Putting a proportion of your earnings towards a pension may seem like a drag right now, but realistically you will need to save for as long as possible to gain a decent income in later years. Not only this, but there are substantial benefits to saving into a pension youre not taxed on contributions and there may be additional extras such as life insurance or lump sums included in your scheme.

These days people are investing more and more in private pension schemes and long term savings the state pension is likely to become negligible with an ageing national population.

State Pension

At present, the basic pension for a single person is 82.05 a week. This depends on you having made sufficient National Insurance Contributions over your working life. Even if you have paid off your mortgage by the time you retire, would this be enough for you to live on? Bear in mind that the age when you can claim your pension (currently 65 for men, 60 for women) is highly likely to rise in the near future, and keep on rising.

Company Pensions

Employers are likely to offer some form of pension scheme. The terms and details of these vary from company to company, but usually fall into one of two basic types: final salary schemes, based on your salary and how long youve been paying into the pension; and money purchase schemes, which depend on the amount contributed into the fund. When you retire, you then buy an annuity a type of insurance which will pay you a regular income. A money purchase scheme can be more flexible, but slightly more risky.

Personal Pensions

These schemes offer a lot of flexibility, and there are several different ways to invest, including investment trusts and unit-linked schemes that depend on share prices. Personal pensions operate in roughly the same manner as company pensions, only you have more control over your investment. Currently there are limits on the contributions you can make to personal pensions, but these are set to change in 2006.

The rules on pensions are changing all the time, and are likely to undergo radical changes in the next few years. For up to date advice, check the Pensions Advisory Service at www.pensionsadvisoryservice.org.uk

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Furthermore, our ageing population face an uncertain future as demographics change by the time todays thirty-year olds reach retirement theres no telling how the economic situation will look. Aside from planning your retirement, you ought to have something to fall back on in case theres a sudden change in your circumstances how would you manage if illness or redundancy curtailed your earnings?

Although these issues are serious ones, there are many ways to ensure that you and your family will be well provided for and finding them need not be a nightmare. Start today by considering how much you can afford to put by. Be realistic, but try to allocate a fair proportion of your budget aim to save at least 10% of your monthly income if you can. Secondly, look at your options this guide provides a general view of some of the more common ways to save and resources for finding more information.

How you choose to save will depend on your age, circumstances and the amount you want to invest but remember its never too late to start, and never too early to plan for your future. Even if you can only afford to put a small amount away every month, it could make a huge difference in the long run.

There are vast amounts of different ways to save and invest, and there are also tax benefits to take into account. In an effort to urge people to save, the government offer various incentives such as tax-free savings plans and childrens savings accounts.

Savings accounts often attract higher interest rates than current accounts, so you could be earning money daily without expending any effort. For those willing to diversify, there are offshore accounts and investments to consider – these are explored in more detail below.

Considering your familys financial security is often a high priority check out the sections on childrens accounts for ideas. The last section offers ways to find more information, with listings of bodies that may be able to help you.

For those willing to diversify, there are offshore accounts and investments to consider – these are explored in more detail below.

Finally, enjoy the feeling of taking responsibility for your own future!

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