What Investments Are Suited for Automatic Savings and Investment Plans?

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What Investments Are Suited for Automatic Savings and Investment Plans?

Generally, any financial services institution that offers savings or investment accounts will offer an automatic investment plan. Savings accounts, checking accounts, stocks, mutual funds, certificates of deposit (CDs) that permit the periodic addition of funds, known as add-on deposits, and savings bonds fit this description.

Your choice of investments is based on purpose

Which investment you choose to have your money deposited in will depend on your intended purpose for those funds. The more risky an investment is, the greater the chance of loss. Therefore, if you are saving up for a short-term purchase, such as a computer within the next year, and you don’t want to risk losing your money, you may find it best to choose a savings account or certificate of deposit. Money market deposit accounts can offer even higher returns provided that your balance meets a certain minimum.

Another way to use automatic investment plans is to obtain a higher rate of interest for your savings. If the bank or credit union where you have your checking account doesn’t offer very high rates on a savings account or a money market savings account, you can use an automatic savings plan to transfer money from your checking account to a savings or money market account offering a higher interest rate.

Money market

One of the more conservative options is a money market deposit account, which typically offers higher interest or dividend rates than savings accounts. It is common for these accounts to restrict the number of deposits and withdrawals that are made each month. If you’re looking to earn even higher rates, consider investment money market mutual funds, which aren’t insured by federal deposit insurance, but seek to keep their value at a stable $1 a share. You can find investment money market mutual funds at mutual fund companies or brokerage firms.

Growth investments

Growth-oriented investments that carry the potential for higher returns along with higher levels of risk can also be used for short term goals, but there is a higher risk that their value will drop. However, investments with higher return potential, such as many stocks and mutual funds, and sometimes real estate, are commonly used for long-term savings because market ups and down generally smooth out over the long term, providing more growth than more conservative investments. These long-term investments are popular with retirement plans and college savings plans.

Low risk for the long term

If you are saving up for the long term and you dislike risk, a low-risk account such as a savings account or certificate of deposit may be appropriate. If you are comfortable with higher levels of risk and want your account to grow at a potentially faster rate, investments like stocks and mutual funds may be a better option.