Questions and answers about saving

Common questions about savings

Instructions: Click each question to learn more.

How much interest can I earn?

If you put your savings in an interest earning account, such as a bank savings account, the amount of interest you’ll earn depends on three factors: the interest rate; how long you keep the money in your account; and, how the bank pays the interest. Almost all banks compound interest. It’s a powerful way to make your savings grow faster.

What is compound interest?

Compounding means a financial institution pays you interest not only on the amount you originally deposited, but also on the interest your deposit has earned over time. With compound interest, your money grows more and a lot faster. (If an account pays what’s called simple interest, that means you only earn interest on the principal, that is, the amount of money you originally deposited.)

How often is interest compounded?

Depending on the account, the interest may be compounded daily, monthly, or quarterly. Each time, you’re paid interest on the new, total amount you have in your account. So the more frequently your money is compounded, the more interest you’ll earn.

How do I pick a high-interest account?

Here’s a quick way to determine which savings account will pay you the most. Just compare the annual percentage yield, or APY, of the accounts. The APY is the rate of return for a one year period. The higher the APY percentage, the more interest you’ll receive.

Is the interest I earn taxable?

Yes. The interest you earn in your bank accounts is considered income, so it is taxable. The bank will provide a form at the end of the year that shows the total amount of interest you earned.

Note: The higher the interest rate, the more your money grows. Also, time is one of your most important tools for saving and investing. The more time your money has to grow, the better.

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