The Way Interest Works on Savings Accounts is Astounding
One of the most important financial tools you have available is savings accounts. These types of accounts are essential for anyone who is working to build wealth. If you want to reach financial goals, it's time to learn about savings accounts. This type of account benefits consumers in a variety of ways.
Perhaps you have never had your own savings account. Those who don't have this type of account need to open one. However, there is a lot of research that should go into finding a savings account. You need to make sure you understand how these accounts work to get started. You also need to find the right account and the right financial institution. You can browse through today’s savings rates here on Wealthry, and you can choose the best option for you.
Interest is a big reason why these accounts are so beneficial to consumers. Savings accounts will typically offer some amount of interest. If you don't know how interest works, it's time to learn.
Interest and Savings Accounts
You should understand how interest works if you have a savings account. Interest is one of the biggest benefits of using a savings account. With interest, you can earn money just by having your savings in your account. When a savings account accumulates interest, you earn a certain amount from the account depending on how much money is in the account. The more money in the account, the more you earn.
What Are Savings Accounts
Some consumers out there, unfortunately, don't have a lot of savings. They haven't yet opened savings accounts to help them grow their savings. These accounts are great tools for growing wealth. A savings account is an account a consumer puts money in that he or she doesn't intend to spend. These accounts are devoted to extra funds that are set aside.
As such, you shouldn't be expected to make frequent withdrawals from these accounts. You should simply plan to deposit excess funds into these accounts. You might eventually withdraw funds from a savings account to make a large purchase. Alternatively, you might use savings accounts funds to make an investment.
How Savings Accounts Differ from Checking Accounts
The other primary type of account is a checking account.
Checking accounts are more basic and common. A checking account is used to deposit checks.
It is also used frequently to make everyday purchases. A checking account typically comes along with a debit card used to make purchases.
On the other hand, a savings account doesn't always include a card like this. Withdrawals from these accounts are typically large and made at the bank.
Calculating Earned Interest
To calculate how much you can earn from a savings account, you need to know the interest rate. A typical interest rate for a savings account is around one percent. If you are earning one percent interest, you'll earn one percent of the amount of money in your account per year.
Say you have $5,000 in your account. This means you'll earn $50 per year on the account at an interest rate of one percent. You get this amount by multiplying $5,000 by your interest rate of .01. You'll make more as you put more into your savings account. When you have $20,000 in the account, you'll earn $200 in interest per year.
Reasons to Take Advantage of Interest Earnings
Perhaps you can see why these accounts and the interest they bring in are so valuable. This could provide another stream of income for you. In fact, if you have enough money in savings, you could actually make a lot in interest each year.
The biggest reason to take advantage of interest is that it leads to another income stream. A good money management definition should stress using money to make more money. That's what savings account accumulating interest is all about.
Passively Making Money
Once your account is set up, you don't have to do anything at all to earn your interest. This means that earning interest is an entirely passive way to make money. You don't have to spend any time on it. You can pursue your other work in the meantime and make money while you earn interest. Earning interest is one of the primary ways to build wealth passively and therefore very efficiently.
Encouraging the Accumulation of Savings
The ability to passively make money isn't the only advantage of these accounts. Another big advantage is simply getting the extra motivation to save. When you start seeing that interest coming in, you're motivated to put more money in savings. This means that you'll make more interest. Therefore, a savings account is a great way to motivate and encourage yourself to accumulate more savings.
How Do I Open a Savings Account
If you want to take advantage of savings accounts, you need to learn how to open them.
Where Do I Go?
You'll typically go to a bank, credit union, or other financial institution to open an account.
What Do I Need?
You'll need some important items to open an account. You'll probably need an identification card like a driver's license. You'll also need to provide your social security number. Another thing you'll probably need is an initial deposit. Some financial institutions will require that your initial deposit is at least a certain minimum amount.
How Long Does It Take?
Fortunately, it doesn't usually take long to open an account. If you go to a financial institution, you can probably open an account in only 15 or 20 minutes. Opening an account in-person is a great idea so that you can ask a representative all the questions you have.
Evaluating Various Banks
Put adequate thought into where you want to open your account. Perhaps you already have a bank you use on a regular basis. You might want to open a savings account at this bank. If you don't have a regular bank, it's time to do some research. You need to find an appropriate financial institution.
There are numerous factors you should look at when choosing a bank or credit union. The following are four of the most important issues to consider:
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Customer Service
Look for a financial institution known for good customer service. Good customer service will eventually come in handy. You're going to have to contact a representative and ask questions at some point. You want to be confident you'll be able to communicate with helpful staff.
Do your research on your financial institution's customer service ratings. In fact, you can even call the financial institution yourself and ask questions. This will give you a good idea of how the bank or credit union staff respond to customer inquiries. If you feel the service is good, you might want to go ahead and open an account.
Convenience of Locations
You want to open an account at a bank with a lot of locations near you. This will make it easy to make an in-person deposit or withdrawal. It will be frustrating if you have to drive a long way for visits to your financial institution.
Go to the website of the financial institution you're considering. The website should provide information about all physical locations. Choose a bank or credit union that doesn't merely have one location near where you live. Also, look for a financial institution with locations near your work and other places you travel frequently.
Product Offerings
Another factor to look into is the various products a financial institution has available. You want to do as much banking as possible with one company for convenience. Consider if the financial institution offers services like loans or business customer services that you may need. It's a good idea to talk with a representative and get a general overview of all the services available.
Interest Rates
If you're planning on opening a savings account, the interest rates a bank offers on savings accounts is an essential factor. You want to choose a savings account with the highest interest rate possible. The higher the interest rate, the more interest you'll earn on your savings.
You might find that credit unions offer higher interest rates than banks. Definitely research credit unions as well as banks when looking for the right place to open an account.
Opening an Account In-Person
You might want to visit your financial institution of choice to open savings accounts. This is often the easiest way to do it. When you go in and open the account in-person, you have the opportunity to ask questions. This helps you to understand exactly what you're getting.
When you visit the financial institution, tell them you want to set up a savings account. You'll then be able to meet with a representative. This representative can ask for all pertinent documents and walk you through the process.
Opening an Account Online
Opening an account in-person might not be possible for you. In this case, consider opening an account online. Many financial institutions allow consumers to open accounts online nowadays. In fact, there are many online banks with no physical locations. At these banks, the only option is to open an account online.
If you open an account online, you're going to have to figure things out yourself. However, you can also call the financial institution for instructions if you have questions. When you open an account online, you may have to send in a picture of your identification card. The financial institution will need to verify your identity.
Tips on Growing Your Savings
Now you know about savings accounts and interest. However, you need savings to take advantage of these things. It's not always easy to set money aside for savings. We all have financial obligations and limited income. Yet you can build savings if you set your mind to it.
There are some things you can do to build savings more easily. The following are three tips you can follow to increase your savings.
Establishing a Budget
The first step to improving your finances by accumulating savings is to establish a budget. A budget tracks your spending. Budgets designate how you're going to use income. Without setting a budget, you don't have much control over your spending each month.
To set a budget, you need to calculate all your expenses. You also need to look critically at your expenses. Try to eliminate expenses that are unnecessary. Get your expenses down as low as possible. This maximizes the funds you have left for savings.
Making Savings Automatic
Set up automatic savings for the most efficient budget management. There are numerous ways to set up automatic savings. You can have your financial instruction automatically take some funds from your checking account and deposit them to your savings account every month. You can also switch your direct deposit settings at work. You can have a portion of your pay automatically deposited into your savings account every pay period.
Automatic savings make accumulating savings easier. This also gets rid of the temptation to spend your money. If funds are automatically deposited to your savings, you don't see them in your checking account. They're therefore never available to you for frivolous spending.
Setting Goals
If you want to improve your finances, you need to set goals. In particular, you should set savings goals. Plan to save up a certain amount of money by certain deadlines. Working toward these goals both motivates you and highlights the progress you're making over time.
Alternatives to Savings Accounts
You don't necessarily have to open a savings account to save and accumulate interest. There are other things you can do with your savings. In fact, some of your other options could be more profitable. Other types of accounts can accumulate interest at higher rates.
Here are four options you can consider for building wealth with your savings:
IRAS
Certificates of Deposit
A certificate of deposit (CD) is a financial product you can put your savings toward. CDs are federally insured. This makes them fairly secure investments.
Unlike a savings account, a CD has a fixed date of withdrawal. This means that you have to put your money toward a CD for a particular length of time and you can't withdraw it earlier whenever you want. The length of a CD can vary from only a few months to more than a decade. Rates on CDs are slightly higher and can sometimes reach 1.9 percent.
You can put your savings toward an individual retirement account (IRA) if you want to save for retirement. IRAs can accumulate a lot of interest if you set them up to take advantage of compound interest. However, IRAs are typically long-term savings plans. You shouldn't expect to be withdrawing from your IRA anytime soon. In fact, depending on what type of IRA you have, you may face penalties for early withdrawals. You should therefore only put money in IRAs that you won't need in the near future. There are two main types of IRA: the Roth IRA and the traditional IRA.
MONEY MARKET ACCOUNTS
Stock Investments
A money market account is a little more like a checking account. However, it accumulates interest rates similar to those of a savings account.
This is a convenient option if you don't want to have a separate account for checking and savings. However, some consumers struggle with this. Because it is easy to withdraw and spend funds, some consumers are tempted to spend more than they would from a savings account.
You might want to try your hand at stock investing if you want to earn more interest. Stock investments can be very profitable. However, they are riskier than simply putting money in a savings account.
There are no guarantees that you will make a profit. That being said, investing in stocks through index funds is a good way to reliably grow savings over time. Keep in mind that you need to know what you are doing.
Finally,
Now that you've learned about how to make money with interest, it's time to start putting this knowledge to use. You can research savings accounts and decide where you want to open yours. The decision you make on where to open an account is an important one. Therefore, you need to give it adequate consideration.
Your finances will be strongest when you take advantage of all the resources you have. Remember that an account set up for savings is a great resource. Also, any account that generates interest helps you grow your wealth. Get started today and let your money work for you.
Once you've established a savings account, you can start reaping the benefits. These accounts are wonderful ways to get more out of your growing savings. Head to your financial institution and ask them about their account options today.