you'll see, there are a tew things you should
know before deciding which type of account
is best for you
The simple, straight-forward, no
nonsense checking account is still widely
available, although it seems to be going the
way of the rotary dial telephone The basic
checking account offers little or no interest;
it merely serves as a clearing house for
your expenses The practice of checkbook
balancing stems from the once-common
process of transferring enough funds from
an interest-bearing savings account to
cover all checking activity; most banks,
you'll find, now offer combined, interest
bearing checking and savings accounts,
which will eventually render obsolete the
traditional checking account.
ii you re aeierminea 10 save your money
the old fashioned way (in a plain, old
passbook savings account), you'll likely
encounter four different methods of interest
payment. The most common method-Day
of Deposit to Day of Withdrawal-is also the
most lucrative; under this system, your
interest payments are computed on the
basis of a day-to-day balance. Some banks
pay customers on a Minimum Balance
Method, whereby your interest is assessed
against the lowest balance on deposit
during a specified interest period, assuming
a constant interest rate, Minimum Balance
customers will earn the lowest possible
interest of any passbook system. You might
also encounter the First-In, First-Out method
of interest calculation (“Fifo"), and the
Last-In, First-Out system (“Lifo”). Interest
bearing accounts under the Fifo system
are calculated under the bank's assumption
that all withdrawals come from the earliest
deposits in an interest period (usually 90
days); conversely, banks that compute
interest on the Lifo system assume any
withdrawals are made from the last deposit
Both accounting systems yield far less than
the more desirable Day of Deposit to Day of
Withdrawal, though somewhat more than
Minimum Balance accounts.
Most banks and financial institutions
now offer money market management funds
to investors with as little as $1000. and you
might want to consider opening such a fund
to take advantage of the high interest rates
(generally two- to three-times higher than
those paid in a passbook savings account)
A money market fund functions as a sort of
joint checking and savings account, with
your money being invested by the bank or
financial institution in short-term debt
certificates Some money market funds offer
clients brokerage services in addition to
the higher interest rates, a feature that will
come in handy when it comes time to make
further investments
One of the more popular types of
savings accounts is a negotiable order of
withdrawal, more commonly known as a
NOW account A NOW account is simply a
checking account that pays interest,
allowing you to combine your checking
and savings activity in one account Tech
nically speaking, a NOW check is nothing
more than a negotiable order to withdraw
money from your savings account, but is as
widely accepted as an ordinary check
Though interest rates are nearly the same
as those offered to passbook savers, there
are sometimes penalties assessed to
customers who dip below a minimum
amount on deposit
Those with longer-term savings needs
will want to consider certificates of deposit
—or CDs a time deposit account requiring
the depositor to leave money in the account
(or a minimum period ol time These
certificates offer a higher rate of interest
than a general passbook savings account,
although there are penalties for early
withdrawal
Most large companies offer employees
a payroll savings plan, deducting monies
from paychecks before they're issued, some
companies, too. provide direct deposit
service with selected banks, allowing
employees to earn interest on their pay
checks immediately upon issue
Check with your local bank to see
which accounts are best for you Some
banks offer additional services (24-hour
banking, personalized service) that may
compensate for lower interest rates
CASE IN POINT
ns narn enougn gening your finances
in order when you have a fixed income, buf
for James Denn, a 25-year-oki musician from
San Antonio, Texas, a regular salary is a
luxury he can't assume "tbu definitely
shouldn't be discouraged,'' Denn counsels
others on the self-employment circuit. "\bu
can make it as a freelancer. It just takes a
little time And you have to stick with it. That's
something they [banks and lending institu
tions1 want to see They want to see that
you've been working in a field and making a
living at it "
Along with his wife, Valene, Denn travels
around San Antonio playing 30s and 40s
nostalgia music in clubs, with an occasional
wedding or private party thrown in here and
there In between gigs, he teaches saxo
phone and flute to 25-30 students each
week
"Our main problem came when we
decided to buy a house." Denn says "There
were a lot of hassles trying to get money
trying to tell them what we did for a living,
and that being self-employed really did work
for us, and that we were economically stable "
The Denns eventually did buy a house
with a $4000 down payment and a 7.25%
mortgage for the first year (which will climb
to /2.25% by the third year) The cost of the
house was $54,000, and their monthly
mortgage payments are now $500 The
couple sang for their supper (and the roof
over their heads) to the tune of $25,000 last
year
"Now that we've been here, and in our
first house, we don't have any problems,"
Denn says "We've put a couple of years
behind us. It's just those first few years that
are a real pmblem, because once you have
your tax returns to show people, then you
really don't have a problem It's lust getting
two years of tax returns showing that you
really do make your money this way That's
what they want to see
"It seems to me like it's just a kind of
game with the bank. They just need to have
on paper that you actually make as much