Saving is a key to financial independence and building wealth.
You probably like making money and spending money, but how do you feel about saving money? Maybe it sounds boring, or even painful, but in reality it’s not.
I agree! Think of saving as giving a gift, or paying a reward, to you! The money you save gives you so many benefits, like cash in an emergency, and the ability to buy big things, like a car.
The thing to remember is that building up huge amounts won’t happen overnight. But it will happen if you make it a habit, make it automatic, and stick with it over time.
A great place to save is in a bank savings account. It helps your money grow with interest.
Ways a savings account can benefit you
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 send you 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.
Click the Next button to see the power of compound interest.