Should You Invest in a Cash Accumulation Fund?

As a new couple putting together a financial plan, some cash savings should be part of the plan. If your employer offers the ability to fund a cash accumulation account as part of your benefits package, this account may be a good place to save some cash. A big benefit of cash accumulation accounts is the attractive rate of interest they pay on the savings.

A cash accumulation fund is an employer-sponsored benefit linked to an optional group universal life insurance benefit. If you sign up for the coverage through payroll deduction you can elect to increase the amount of your payroll deduction with the extra money going into the cash accumulation fund. The cash accumulation fund is linked to the group universal life coverage and the maximum amount you can set aside in the fund is based on insurance tax code.

The cash accumulation fund allows you to save money as an automatic deduction from your paycheck. The fund will pay a competitive rate of interest with a guaranteed minimum interest rate. The guaranteed rate is typically 3 to 4 percent. The interest earned on the fund is tax deferred until you make withdrawals. You can withdraw money at any time from your cash accumulation fund by either a direct withdrawal or loan against the cash balance.

To participate in the cash accumulation fund employee benefit you must enroll in group life insurance coverage. If you believe you do not need the life insurance coverage, your decision is whether to get the life insurance anyway just to have access to the cash accumulation fund. The cost of the life insurance is based on the amount of coverage selected -- usually a multiple of your annual income -- and your age. The cost of the insurance will increase every time you receive a raise or get one year older.

A cash accumulation fund may be one of several employee benefit products with which you can save money. Where to put your savings depends on your personal financial goals. Your employer may offer a 401(k) retirement savings plan which also reduces your taxable income. Another tax advantage savings option would be a health savings account. The major advantage of the cash accumulation account compared to these other options is the ability to withdraw money at any time for any reason without tax penalties.

With an employer-sponsored cash accumulation fund benefit, you are restricted by the rules attached to the benefit. There are other financial savings vehicles which allow you to make regular deposits to grow your cash savings. Banks and credit unions offer savings or money market accounts which allow you to make deposits or withdrawals and earn interest on your balance. A money market mutual fund has a stable share value and allows regular deposits. To make sure you add to the savings every month you can set up regular electronic deposits from your checking account into any of these types of accounts.