We all have one, a savings account. Why, well, when you opened your checking account, the next thing out of the bankers mouth was, would you like a savings account? You think to yourself, ‘a savings account, why yes-yes I do. I should establish a savings account for something. I don’t need to know what it is now, but I will open a savings account and put something in it, every pay day’.
Whether you are saving for a car, a down payment on a home, a vacation or an emergency, you should to make sure you have a savings plan. It can be quite frustrating when an unexpected expense comes up and you have no way of paying for it financially. So you borrow the money, thereby creating debt that you may not be able to pay back with your current income, which can cause some other financial problems.
I don’t know about you, but I have never really heard the banker explain to me, why I should establish a savings account with their bank. They may have glossed over the benefits of the savings, hiding the interest rate in the vague information that I ate, because I’m sitting there trying to figure out what I should save for, and no, the banker did not just introduce a new idea to me, I should be saving. Its the adult thing to do!
However, have you ever took the time to sit down and actually look at your savings account? Not the balance, but the interest rate? If you have, do you know what that means for you and your money?
Many people have no clue as to the amount of money they could earn on their savings balance. They are not aware of a simple fact, that their money is just digits on a screen, not physically held by their bank branch and their bank uses it to make themselves money. They use your money, to fund different types of lending products, such as, auto and home loans, credit cards, etc. They could charge interest as high as 29.99%. In other words, they are earning as high as 29.99% on your money, that they are lending out to strangers. And then they thank you, by offering you a much, much, lower rate of return.
Most poplar banks, offer a standard savings account with an interest rate as low as 0.01%. What does that mean for you, the client?
Say for instance you have $5000 in your savings account and the bank is paying you 0.01% in interest. If you maintain that balance for the month, they will pay you $.04 for using your $5000 for a month. So yes at the end of the month you will see an additional four cents in your savings account, totaling $5000.04. However, if you found a bank that pays for instance, 1.90% in interest and you put your money into their savings account. You will earn $7.80 at the end of the month. Yes an additional seven dollars and eighty cents deposited in your account at the end of the month, totaling $5007.80. If you would like to see a formula on how to calculate interest, watch: “How To Calculate Your Savings Account Earnings”.
This gets even better though. If you leave the money in your account the following month and you are still earning the rate of 1.90%, that is now applied to your new balance of $5007.80. Yes, your savings account will grow much faster, with a higher rate of return from the bank and your regular deposits. Even if you decide, to stop making deposits into your savings account, it will continue to grow thanks to the interest you are receiving from the bank.
So Stop whatever you are doing right now and look at your savings account interest rate. If you would like a higher rate of return, start googling “savings accounts with high interest rates”. Make sure they are FDIC insured before you make the switch and put your savings to work for you.
I enjoy reading and I really enjoy educating myself on ways to make more money. One of my current reads is “The Richest Man In Babylon”. Its a great book, I highly recommend reading. It really emphasizes putting your money to work for you. Setting some aside and making it grow.
Remember, you work hard for your money, make it work harder for you.