What type of account should I open?

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After you have met your short-term savings goal, you'll need to decide how to invest your additional savings. Savings accounts offer trivial interest rates on your savings, so you'll want to step towards investment options to some degree. Options range from highly liquid assets with low, but guaranteed, returns (such as money market accounts and certificates of deposit (CDs)), to opening retirement accounts, which have low liquidity (due to early withdrawal penalties) but a variety of investment options with varying risk. In the middle of the spectrum lie "brokerage accounts," which enable you to invest in a variety of assets (stocks, mutual funds, index funds, bonds, etc.) and to convert your assets back to cash fairly quickly and easily. Retirement accounts are considered long-term accounts and allow you to make riskier investments that offer potentially high rates of return. Brokerage and most retirement accounts will involve transaction fees every time you buy or sell, and mutual funds will charge annual fees based on the size of your investment.

You can open a money market account or purchase a CD at a bank or credit union. To open a retirement or brokerage account, talk to a financial advisor or visit the website of a brokerage firm such as e*trade or Fidelity.