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A Primer on Savings Products

In today's rapidly changing financial landscape, it is more important than ever for individuals to have a solid understanding of the various savings and investment products available to them. At Pathways Financial Credit Union, we are committed to providing our valued members with the knowledge and tools they need to make informed decisions about their financial futures.

This article will serve as a comprehensive yet introductory guide to the savings and investment products we offer, including a regular savings account, money market accounts, Term Share Certificates (TSCs), and Individual Retirement Accounts (IRAs). Whether you are an existing member or considering joining our credit union, we hope this information will help you better understand your options and choose the products that best suit your needs.

The Difference Between Saving and Investing

Before we delve into the specific products we offer, it's crucial to understand the difference between saving and investing. Although these terms are often used interchangeably, they refer to distinct financial activities with unique goals and risks.

Saving involves setting aside money in a safe and easily accessible account, such as regular savings accounts or money market accounts. The primary goal of saving is to preserve your money and maintain its value, making it an ideal option for short-term financial needs and emergencies. A savings account typically provides a low but stable return, with little risk to your principal.

Investing, on the other hand, involves putting your money into assets like stocks, bonds, or mutual funds, with the goal of growing your wealth over time. While investing has the potential for higher returns compared to saving, it also carries a higher degree of risk. The value of investments can fluctuate, and there is always the possibility of losing some or all of your principal. As a result, investing is generally better suited for long-term financial goals and should be approached with a well-planned strategy.

It's worth noting that Individual Retirement Accounts (IRAs) are a unique type of savings account product that combines elements of both saving and investing. While IRAs are designed for long-term retirement planning, they fall under the savings products umbrella because they are primarily focused on preserving and growing wealth in a more conservative manner compared to other investment options.

IRAs allow you to contribute money to a tax-advantaged account, where you can invest in various assets such as stocks, bonds, or mutual funds. However, unlike traditional investment accounts, IRAs have specific tax advantages and contribution limits, which encourage long-term saving and discourage early withdrawals.

IRAs provide a more secure and stable approach to retirement planning, offering a blend of saving and investing strategies. By including them in our range of savings account products, we aim to provide a comprehensive suite of options for our members, allowing them to tailor their financial planning according to their unique goals and risk tolerance.

The Importance of Choosing the Right Financial Institutions

One of the key factors in making the most of your savings and investment products is choosing the right financial institution. Both a bank or credit union offers various types of deposit products, including savings accounts and money market accounts. However, there are some important differences between bank accounts and credit union accounts that can impact your overall experience and financial success.

Credit unions, like Pathways Financial Credit Union, are not-for-profit, member-owned financial cooperatives. This means that any profits generated by the credit union are returned to the members in the form of better interest rates, lower fees, fewer monthly fees, and improved services than a standard bank account. As a member of a credit union, you have a say in how the institution is run, and you can be confident that your best interests are always at the forefront.

Banks, on the other hand, are for-profit institutions owned by shareholders. Their primary goal is to generate profits for their shareholders, which can sometimes lead to higher fees and less favorable interest rates for customers.

When it comes to savings and investment products, credit unions often have the edge over banks. Because they are member-owned and not-for-profit, credit unions are typically able to offer higher interest rates on savings accounts, money market accounts, and Term Share Certificates. In addition, credit unions often have lower fees and more personalized customer service, which can make managing your savings and investments a more pleasant and stress-free experience.

Savings Products at Pathways Financial Credit Union

Regular Savings Accounts

A regular savings account is the foundation of a sound financial plan. At Pathways, our savings accounts offer competitive interest rates to help your money grow over time.

We make it easy for you to access your funds through online and mobile banking, and our accounts come with no monthly fees or minimum balance requirements. A regular savings account is perfect for building an emergency fund or saving for short-term goals, such as vacations or major purchases.

Money Market Accounts

If you're looking for a savings account option with higher interest rates, consider a money market account. These accounts offer tiered interest rates, which means that the more you save, the higher your interest rate will be. Money market accounts also provide easy access to your funds through checks and debit cards, making them a convenient and flexible option for those who want to earn higher interest without sacrificing liquidity.

Term Share Certificates (TSCs)

Term Share Certificates, also known as Certificates of Deposit (CDs) in other financial institutions, are a type of investment product offered by Pathways. TSCs allow you to lock in a fixed interest rate for a specific period (or term), typically ranging from three months to five years.

When the term ends, you receive your principal plus the accrued interest. TSCs, like Certificates of Deposit in banking, are an excellent option for those looking to earn a higher return on their savings account without exposing their principal to the risks of the stock market. At Pathways, we offer a variety of TSC terms and competitive rates to help you find the perfect fit for your investment needs.

Individual Retirement Accounts (IRAs)

Saving for retirement is a crucial aspect of long-term financial planning. An Individual Retirement Account (IRA) is a tax-advantaged savings vehicle designed to help you save for your golden years. Pathways Financial Credit Union offers both Traditional and Roth IRAs, each with its own unique tax benefits and contribution rules.

Traditional IRAs allow you to make pre-tax contributions, which can lower your taxable income in the year you contribute. The funds in a Traditional IRA grow tax-deferred, meaning you don't pay taxes on the investment gains until you withdraw the money in retirement. This can be particularly beneficial if you expect to be in a lower tax bracket during your retirement years.

Roth IRAs, on the other hand, are funded with after-tax dollars, meaning contributions are not tax-deductible. However, the investments in a Roth IRA grow tax-free, and qualified withdrawals in retirement are also tax-free. This can be an attractive option for those who anticipate being in a higher tax bracket in retirement or who prefer the flexibility of tax-free withdrawals.

Strategies for Maximizing Savings Accounts and Investment Growth

Achieving your financial goals requires not only choosing the right mix of savings and investment products but also employing smart strategies to maximize their growth potential.

Here are some tips and advice to help you make the most of your savings and investments at Pathways Financial Credit Union:

Dollar-Cost Averaging

This investment technique involves making regular, fixed-dollar contributions to your investment accounts, such as IRAs, regardless of market conditions. Dollar-cost averaging can help reduce the impact of market volatility on your investments by spreading your purchases over time. This approach allows you to buy more shares when prices are low and fewer shares when prices are high, potentially lowering the average cost per share over time.

Diversification

Spreading your investments across different asset classes, such as stocks, bonds, and cash equivalents, can help reduce the overall risk of your investment portfolio. Diversification works on the principle that not all investments will perform poorly at the same time, and by holding a variety of investments, you can potentially cushion the impact of market fluctuations. Review your investment options within your IRA and consider diversifying your holdings to create a balanced portfolio that aligns with your risk tolerance and financial goals.

Setting Up Automatic Contributions

Automating your savings account and investment contributions can be a powerful tool in building wealth over time. By setting up recurring transfers from your checking or savings account to your savings or investment accounts, you can ensure that you're consistently contributing to your financial goals. Automatic contributions also help eliminate the temptation to spend the money elsewhere and promote the habit of paying yourself first.

Rebalancing Your Portfolio

Over time, your investment portfolio may become unbalanced due to varying performance across different asset classes. Periodically reviewing and rebalancing your portfolio helps ensure that your investments remain aligned with your financial goals and risk tolerance. Rebalancing involves adjusting your holdings by selling over-performing assets and buying under-performing assets to maintain your desired asset allocation. This process can help you avoid being overly exposed to a specific asset class and maintain a diversified portfolio.

Regularly Review Your Financial Goals

As you progress through different stages of life, your financial goals and needs may change. It's essential to periodically review and adjust your savings and investment strategies to ensure they remain in line with your current objectives. This process may involve increasing your contributions, shifting your focus from short-term to long-term goals, or adjusting your risk tolerance as you approach retirement.

Stay Informed and Educated

Understanding the fundamentals of personal finance, savings products, and investment options is crucial in making informed decisions about your financial future. Stay up-to-date with the latest news and trends in the financial world, attend educational workshops or webinars, and consider seeking advice from a financial professional to ensure you're making the most of your savings account and investments.

By implementing these strategies, you can optimize the growth potential of your savings accounts and investment products at Pathways. Keep in mind that patience and consistency are key factors in achieving long-term financial success. Stick to your plan, stay disciplined, and remember that a well-considered approach to saving and investing will help you reach your financial goals.

Safety and Insurance of Savings Accounts and Investment Products at Credit Unions

When it comes to managing your hard-earned money, safety and security are top priorities. At Pathways Financial Credit Union, we understand the importance of protecting your savings and investments, and we take several measures to ensure the highest level of safety for our members' deposits.

One of the primary safeguards for your deposits at credit unions, including Pathways Financial Credit Union, is the protection provided by the National Credit Union Share Insurance Fund (NCUSIF). Administered by the National Credit Union Administration (NCUA), an independent federal agency, the NCUSIF acts like the Federal Deposit Insurance Corp by insuring the deposits of millions of account holders across the United States.

Here's what you need to know about the safety and insurance of savings and investment products at credit unions:

NCUSIF Insurance Coverage

The NCUSIF provides insurance coverage of up to $250,000 per individual deposit account, per federally insured credit union, for each account ownership category. This means that your savings accounts, money market accounts, and term share certificates (CDs) are insured up to the maximum allowable limit, providing you with peace of mind knowing that your deposits are protected against potential losses.

Additional Insurance for Joint and Retirement Accounts

In addition to the individual coverage limit of $250,000, joint accounts and certain retirement accounts, such as Traditional and Roth IRAs, receive separate insurance coverage. This means that each co-owner of a joint account and each type of retirement account is insured up to $250,000, effectively increasing the total amount of insurance coverage available to you.

Investment Products and Insurance

While the National Credit Union Administration insures the principal in deposit accounts, it's important to note that investment products, such as stocks, bonds, and mutual funds held within an IRA, are not insured by the NCUSIF. These investments are subject to market risks and can fluctuate in value.

At Pathways Financial Credit Union, we strive to reduce our members' investment risks with a versatile array of investment options. We also partner with our members so that they can build tailored strategies based on their individual objectives and risk preferences.

Enhanced Protection with Excess Share Insurance (ESI)

In addition to the federal insurance provided by the NCUSIF, Pathways also offers its members an extra layer of protection with private deposit insurance through Excess Share Insurance (ESI). This additional coverage insures each qualifying account up to $250,000, effectively doubling the total insurance protection to $500,000 per account ownership category.

Credit Union Stability

The NCUA closely regulates and supervises federally insured credit unions to ensure their financial stability and compliance with federal laws and regulations. The NCUA conducts regular examinations of credit unions, including Pathways Financial Credit Union, to monitor their financial health and ensure the safety of members' deposits.

With the combined protection of the NCUSIF and ESI, Pathways Financial Credit Union depositors can enjoy unparalleled peace of mind, knowing that their savings and investments are backed by robust insurance coverage.

This exceptional level of protection allows our members to confidently pursue their financial goals, trusting that their assets are secure with Pathways Financial Credit Union.

Frequently Asked Questions about Savings and Investment Products

Navigating the world of savings and investment products can be confusing, especially with the abundance of options and terminology. To help you better understand these products, we've compiled a list of common questions and misconceptions, along with their answers:

Q. What is the main difference between a savings account and a money market account?

A. Money market accounts and savings accounts share a common purpose of helping you save money, however, money market rates are generally higher to compensate for their larger minimum balance requirements. Additionally, they frequently come with restricted check-writing criteria and debit cards when compared to traditional saving accounts.

Q. How are the interest rates on savings accounts, money market accounts, and Term Share Certificates determined?

A. With consideration of conditions in the market, a financial institution's preferences and regulations, as well as the kind of account you open - interest rates can differ. Generally speaking, Term Share Certificates guarantee higher rate yields compared to a savings account or money market accounts because it requires locking-in for an extended period.

Q. How does the compound interest work in savings and investment accounts?

A. Compound interest refers to the process of earning interest not only on the initial deposit but also on the interest that accumulates over time. In a savings account or investment accounts, interest can be compounded daily, monthly, quarterly, or annually. The more frequently interest compounds, the greater the growth potential of your account. It's essential to consider the compounding frequency when comparing different account options to maximize your earnings.

Q. What is the difference between regular savings accounts and a high-yield savings accounts?

A. If you're seeking to get the most out of your savings, then a high-yield account is an excellent option. These types of accounts usually have higher interest rates than regular ones and can help your money grow faster. Although some conditions may apply such as having a minimum balance or fewer transactions allowed, they could be well worth it in order to achieve greater financial success.

Q. What are the key differences between checking accounts and savings accounts, considering factors such as interest rates and fees?

A. A checking account and a savings account are both types of deposit accounts, but they serve different purposes and have distinct features. A checking account is designed primarily for everyday transactions, such as paying bills, making purchases, and receiving direct deposits.

Checking accounts often come with a debit card and check-writing capabilities, making them convenient for frequent use. However, they typically have lower interest rates compared to savings accounts or may not earn interest at all.

Q. Are there withdrawal limitations on savings and money market accounts?

A. The federal government has put a limitation of six transactions per month on items such as online and telephone transfers, checks, and automatic bill payments from both savings and money market accounts. Fortunately though, ATM withdrawals made in person are exempt from this restriction.

Q. Are there minimum deposit requirements for savings accounts, money market accounts, and Term Share Certificates?

A. Minimum deposit requirements can vary depending on the type of account and the financial institution. Savings accounts typically have lower minimum deposit requirements, making them accessible to a wider range of savers. Money market accounts often require a higher minimum deposit to open and maintain, as they generally offer higher interest rates in return. Term Share Certificates may have varying minimum deposit requirements based on the term length and interest rate. It's essential to review the specific requirements of each account type at Pathways Financial Credit Union to ensure you can meet the minimum deposit criteria and maximize your earning potential.

Q. Are there penalties for early withdrawal from a Term Share Certificate (CD)?

A. Yes, since TSCs are effectively CDs, they are subject to the same rules and regulations, so withdrawing funds from a Term Share Certificate before its maturity date typically results in an early withdrawal penalty. The penalty amount may vary depending on the term length and specific terms and conditions of the certificate.

Q. Can I open a savings or money market account jointly with another person?

A. If you're looking to manage your funds with another person, a joint account is the ideal solution. Whether it's someone close like a spouse or family member, or just a friend, both users have equal authority on that specific account and can access the money at any time by either depositing or withdrawing funds. Moreover, joint accounts come with additional insurance coverage separate from individual accounts – making sure it better protects what matters most!

Q. Can I contribute to both a Traditional IRA and a Roth IRA in the same year?

A. Yes, you can contribute to both types of IRAs in the same year, but the combined contributions must not exceed the annual contribution limit set by the IRS (please check the contribution limits for your given year and also it is recommended to consult your accountant or tax advisor for details).

Q. Are the funds held in IRAs insured by the NCUSIF and ESI?

A. The cash deposits held in IRAs, such as those in savings or money market accounts, are insured by the NCUSIF and ESI, just like other deposit accounts. However, investments like stocks, bonds, and mutual funds held within IRAs are not insured, as they are subject to market risk.

Q. How often should I review and rebalance my investment portfolio?

A. It is generally recommended to review your investment portfolio at least once a year or whenever you experience significant life changes, such as marriage, divorce, or job loss. Rebalancing your portfolio should be done based on your individual financial goals, risk tolerance, and time horizon. You should also consult a professional investment advisor for additional detail.

We hope that addressing these frequently asked questions helps clarify some of the complexities surrounding savings and investment products. At Pathways Financial Credit Union, we are always here to assist our members in making informed decisions and achieving their financial goals.

If you have further questions or need personalized advice, don't hesitate to reach out to our team of dedicated professionals.

When It's Time to Make a Decision, We're Here to Help You

At Pathways Financial Credit Union, we are dedicated to providing our members with a wide array of savings and investment products to help them achieve their financial goals. Whether you are focused on building an emergency fund, saving for a significant purchase, or planning for a secure retirement, we have the tools and resources to help you make informed decisions and grow your wealth.

By choosing Pathways Financial Credit Union as your financial partner, you can be confident that you are working with an institution that has your best interests at heart. Our team of experienced professionals is always available to answer your questions and guide you through the process of selecting the right products for your needs.

We invite you to explore our offerings and join the growing community of members who trust Pathways Financial Credit Union for all their savings and investment needs.

Routing # 244077093

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(614) 278-6152