Savings helps you reach many of your financial goals, whether they are short-, mid- or long-term. They help you with paying for:
Automatic Deduction from Your Paycheck
One of the easiest ways to save money is to have a certain amount of money from your paycheck be automatically deposited into a savings account. This way you never see the money, but you are allotted a certain amount to save.
Types of Savings Accounts
Individuals have different choices on saving options based on their preferences on time frame, investment expectations and other related factors. For example, if the availability of your money is very short, you don’t want to lock it in a CD account. Here are some of the type of accounts available. For more assistance, ask your financial institution representative.
Certificate of Deposit
- Easy to access your money at any time.
- Guaranteed rate of interest.
- Move money easily from one account to another.
- When you don’t need immediate access to your money.
- Earn interest rate to full term.
- Must leave the deposit in the account for the entire term to avoid early-withdraw penalty.
- Receive principal and interest at the end of the term.
- Pay no fees if you maintain a minimum balance.
- Earn higher interest rates than saving accounts.
Understanding Interest & Compound Interest Over Time
When you save money - your money earns interest at a certain rate. The interest amount is added to your original savings amount.
For example, say you have an original (principle) amount of money = $1,000.
The account you have deposited it in has a 10% interest rate for one year = $1,000 x .10
The first year you earn $100 which brings to total to $1,100.
The second year you earn 10% interest of $1,100 =$110
And so on.
Example: If you save $25 per month at a interest rate of 4%, you will have $1,675 after 5 years.
Rule of 72
The rule of 72 tells how many years it will take for you to double your investment. Take 72 and divide it by the interest rate you’re earning. If you’re earning 8 percent, then 72 ÷ 8 is nine years - which means your money will double in nine years.