Online savings accounts often appear to give you a more value - in other words a much higher interest rate, over 6% in some cases. Better still, there are often no fees, or very low fees. You can also access your money whenever you want.
The thing to watch out for is the fine print. You may be fine with placing your savings in an account like this and never - or rarely - withdrawing it. But an emergency could crop up and you need to access some of your savings. Then you find that not only is there a high transaction fee, but you've blown your interest on the balance for the rest of that month.
One month of no interest may not seem like much to worry about. However, it actually puts you further behind than you would be if you had an saving account with slightly lower interest rates and no transaction fees. Another possible problem could be that your single transaction may put your balance below the minimum required to keep your high interest. So not only have you blown your high interest for the month, but your account has reverted to low interest until such times as you can get that balance back up.
Thursday, August 28, 2008
How do they work out compound interest?
Compound interest rates can be referred to as an Annual Percentage Rate, Effective Annual Rate or Effective Interest Rate. Of course, our saving account are not the only places we see compound interest at work. It cuts both ways; compound interest is also charged on loans. When you borrow money for a house, car or whatever, you'll notice that the amount of interest you have to pay at first is really high. In fact you pay off more interest than principal.
Gradually that comes down and you begin to see light at the end of the tunnel. You start to pay more off the principal and that brings your total interest down more. Meanwhile the financial institution from whom you borrowed is smiling all the way to their bank.
But to get back to that savings account earning compound interest for you. The longer you hold a savings account, the more interest you will get on it because you keep getting more interest paid on your interest all the time, like a tier effect. So sticking with a savings account is a good and very safe way to invest your money. You could get a higher return on some other types of investments, but there may be more risk attached to them.
Gradually that comes down and you begin to see light at the end of the tunnel. You start to pay more off the principal and that brings your total interest down more. Meanwhile the financial institution from whom you borrowed is smiling all the way to their bank.
But to get back to that savings account earning compound interest for you. The longer you hold a savings account, the more interest you will get on it because you keep getting more interest paid on your interest all the time, like a tier effect. So sticking with a savings account is a good and very safe way to invest your money. You could get a higher return on some other types of investments, but there may be more risk attached to them.
What is Compound Interest?
Most of us have heard of interest. That's what you have to pay when you get a loan. That's what makes it so hard to pay back the loan when the interest rates keep on rising! Ah yes, and that's the measly little bit of extra money the bank gives - grudgingly, it appears - when we have a few bucks saved up. But wait! It's not as bad as it seems.
Those two magic words "compound interest" that Einstein referred to as the world's greatest discovery are put to work for us when we have a savings account. But those of us who have just a few hundred dollars don't seem to notice it all that much. That's because it shows up better on larger amounts - and if you don't keep withdrawing. These days most high interest savings accounts work on compound interest.
The interest that you earn on your $100 may not seem much, but it is added to the balance, and then in the second year interest is paid on that total, rather than just on your original $100. So you are basically getting interest paid on your interest or if you have a managed fund then it is the dividend reinvested. When this keeps on every year - as it does, so long as your keep your savings account going, then that total really begins to add up.
Those two magic words "compound interest" that Einstein referred to as the world's greatest discovery are put to work for us when we have a savings account. But those of us who have just a few hundred dollars don't seem to notice it all that much. That's because it shows up better on larger amounts - and if you don't keep withdrawing. These days most high interest savings accounts work on compound interest.
The interest that you earn on your $100 may not seem much, but it is added to the balance, and then in the second year interest is paid on that total, rather than just on your original $100. So you are basically getting interest paid on your interest or if you have a managed fund then it is the dividend reinvested. When this keeps on every year - as it does, so long as your keep your savings account going, then that total really begins to add up.
All About Managed Investment Schemes
A managed investment scheme is when you pool your money with other investors with the intention of getting back a good return. By using a managed investment scheme, you can access a great many more investment opportunities than if you did it by yourself, but is more complicated than putting your money in a saving accounts. Some investments may require a minimum amount before shares can be purchased. When you pool your resources with others, you can access these types of investments that may otherwise be out of your reach. This means that you can start investing with a smaller amount of money.
You don't need to know a lot about investments when you use a managed investment scheme. Professionals trained in the art of investing do all the hard work. While this means you don't have control of your finances on a day-to-day basis, you can have peace of mind in knowing that they are relatively safe.
Before choosing a managed investment scheme, be sure to check it out on the Australian Securities and Investment website. Each scheme must be registered with the Commission. If it is not, suspect a shady deal and avoid it. You can't afford to risk losing your money in something illegal, there is no harm putting your money in a term deposit while you think it over. Different types of schemes include property or cash management trusts, equity trusts (shares), or agricultural trusts such as horse breeding or aquaculture.
You don't need to know a lot about investments when you use a managed investment scheme. Professionals trained in the art of investing do all the hard work. While this means you don't have control of your finances on a day-to-day basis, you can have peace of mind in knowing that they are relatively safe.
Before choosing a managed investment scheme, be sure to check it out on the Australian Securities and Investment website. Each scheme must be registered with the Commission. If it is not, suspect a shady deal and avoid it. You can't afford to risk losing your money in something illegal, there is no harm putting your money in a term deposit while you think it over. Different types of schemes include property or cash management trusts, equity trusts (shares), or agricultural trusts such as horse breeding or aquaculture.
Wednesday, August 27, 2008
Superannuation for the Self-Employed
For self-employed people to enjoy the benefits of superannuation or a self managed superannuation, they must make the payments themselves. Normally, the employer is the one who must make payments and this is compulsory. If you are self-employed, you are your own boss, so you have to make the payments. You may wonder if there is any use bothering, but self-employed contributions do attract significant tax savings. However, you will still need the services of an accountant as percentages and age limits seem to change every year.
There is a wide field of choice when it comes to super funds. When choosing a public fund from a bank or other financial institution or an insurance company, you need to carefully consider what fees they charge and what benefits they give. The reputation of the institution should also be taken into account. Choosing a rock solid reputation will give you peace of mind and ensure the success of your investments, there asset diversification can be similar to those you might see available in managed funds.
Public-offer funds such as those offered by banks give limited participation. You should be able to choose what level of risk you are comfortable with, though. That is, a high return but riskier investment strategy or a lower return but more dependable one. This is about all you can choose, as the trustee is the one who must make all other decisions.
There is a wide field of choice when it comes to super funds. When choosing a public fund from a bank or other financial institution or an insurance company, you need to carefully consider what fees they charge and what benefits they give. The reputation of the institution should also be taken into account. Choosing a rock solid reputation will give you peace of mind and ensure the success of your investments, there asset diversification can be similar to those you might see available in managed funds.
Public-offer funds such as those offered by banks give limited participation. You should be able to choose what level of risk you are comfortable with, though. That is, a high return but riskier investment strategy or a lower return but more dependable one. This is about all you can choose, as the trustee is the one who must make all other decisions.
Is Self-Managed Super for You?
If you were thinking of self managed super funds, experts advise to double check certain salient points. For a start, they tell us that you need to have at least $200,000 to make it financially worthwhile. The cost of running your own fund can be around the $1700 per annum mark. This includes the regular audit and reporting that are mandatory.
Time and expertise are other factors. Creating your own super fund is not as simple as opening a saving account. Unless you have plenty of time to spare and know what you are doing, you could find that managing your own super fund is more trouble than it's worth. You have to choose which investments are right for you and know which should be insured. If you change funds you will be changing benefits and fees too. You need to be sure that the fees are kept down while giving you the most benefits possible. You have to be the trustee of your fund and if something goes wrong, then you are legally responsible, even if it was not your fault.
Help is available for those interested in running their own super fund, but be sure you choose the right help. Unless an accountant is licensed they are not allowed to give advice. They can get into a lot of trouble - and so can you - for giving advice they are not qualified to give.
Time and expertise are other factors. Creating your own super fund is not as simple as opening a saving account. Unless you have plenty of time to spare and know what you are doing, you could find that managing your own super fund is more trouble than it's worth. You have to choose which investments are right for you and know which should be insured. If you change funds you will be changing benefits and fees too. You need to be sure that the fees are kept down while giving you the most benefits possible. You have to be the trustee of your fund and if something goes wrong, then you are legally responsible, even if it was not your fault.
Help is available for those interested in running their own super fund, but be sure you choose the right help. Unless an accountant is licensed they are not allowed to give advice. They can get into a lot of trouble - and so can you - for giving advice they are not qualified to give.
Managing Mid-Year Finance
Aren't you glad that the end of the financial year doesn't come at Christmas time? Instead, June rolls around and we have to be prepared for all the extra work necessary to sort out our finances, find details of those managed funds investments and get receipts in order. But why not be a wise owl and get in ahead of time? You can save yourself a bit of stress by being prepared. Get all your receipts to hand and do that bookwork right now. And to start with, how about trying to save money? If you inspect all those phone plans and electricity or gas and insurance bills you may find that switching to another provider can save you heaps. Of course, you know to always read the fine print so you don't sign up for something unpleasant.
You can often save in the home, too by donning warmer clothes before turning on the heater or working with the weather to dry clothes instead of using that convenient but costly clothes dryer. Looking at your saving accounts is another way you may be able to save money and make more interest. Electronic accounts are often fee-free and give wonderful rates of interest compared to ordinary savings accounts.
If you've been putting off buying that new monitor or printer for your business, remember that it is tax deductible. But there have been recent changes to what you can claim, so check that out too.
You can often save in the home, too by donning warmer clothes before turning on the heater or working with the weather to dry clothes instead of using that convenient but costly clothes dryer. Looking at your saving accounts is another way you may be able to save money and make more interest. Electronic accounts are often fee-free and give wonderful rates of interest compared to ordinary savings accounts.
If you've been putting off buying that new monitor or printer for your business, remember that it is tax deductible. But there have been recent changes to what you can claim, so check that out too.
Money Management for Women
Most women can manage their day-to-day finances admirably. In fact, according to experts, they are highly skilled at budgeting and finding ways to reduce spending and building up their savings accounts. This is really important, since women traditionally don't get as much money as men do. Where their skills don't match up to those of the menfolk is in the areas of investment and retirement savings. Nor do they understand financial terminology as well as men. But they are eager to learn and should make every effort to do so if they are to take full control of their financial future.
Reports show that many women don't feel that money is necessary to be happy in life. And while this sentiment is admirable, it is also likely to cause them to have less money than they need as they get older and cannot work. If women were to work on building up their confidence in investing, they would find that the stress and boredom of handling money in this way would be gone and they would soon be able to see all the benefits.
Women have gradually broken through many male dominated barriers in the past; now they need to hone their skills in the area of money management and investments. But first they must change their attitudes. Money is not the be-all and end-all of life, but we do need a certain amount of it and it is good to know the difference between a managed fund and a term deposit. And it's only wise to work towards protecting your future. Women live longer than men, so they cannot expect to have a man around into their old age to take care of finances for them.
Reports show that many women don't feel that money is necessary to be happy in life. And while this sentiment is admirable, it is also likely to cause them to have less money than they need as they get older and cannot work. If women were to work on building up their confidence in investing, they would find that the stress and boredom of handling money in this way would be gone and they would soon be able to see all the benefits.
Women have gradually broken through many male dominated barriers in the past; now they need to hone their skills in the area of money management and investments. But first they must change their attitudes. Money is not the be-all and end-all of life, but we do need a certain amount of it and it is good to know the difference between a managed fund and a term deposit. And it's only wise to work towards protecting your future. Women live longer than men, so they cannot expect to have a man around into their old age to take care of finances for them.
Be Aware of ID Theft
Identity theft is on the increase across the globe, with over 25% of all fraud reported in Australia involving false identities. In its simplest form, false identities are created using fake documents: much worse is when criminals take the identity of a real person and use his documents - such as credit cards - to run up huge bills in his name. Other crimes may also be perpetrated in the person's name. Very often, the first the innocent victim knows about any of it is when a debt collector comes calling. Or it may be when he is refused a loan or finds a great deal of money gone from his saving account.
The victim sometimes knows people who commit this kind of fraud; they can be family or 'friends'. Some people find the temptation to tap into the finances of another person just too big to resist. Never let your personal details such as credit cards numbers or PINs for bank accounts become known to other people, even those you trust. Don't give your details to anyone over the phone either, even if they sound friendly.
Credit card receipts should be torn into pieces or shredded by machine before disposing of them. Thieves often go through trashcans to get these details. When you receive bank statements, go through them carefully to make sure there are no purchases there that cannot be accounted for. And if you even suspect fraud, then contact your financial institution to cancel all your cards and prevent access to your accounts - and report it to the police.
The victim sometimes knows people who commit this kind of fraud; they can be family or 'friends'. Some people find the temptation to tap into the finances of another person just too big to resist. Never let your personal details such as credit cards numbers or PINs for bank accounts become known to other people, even those you trust. Don't give your details to anyone over the phone either, even if they sound friendly.
Credit card receipts should be torn into pieces or shredded by machine before disposing of them. Thieves often go through trashcans to get these details. When you receive bank statements, go through them carefully to make sure there are no purchases there that cannot be accounted for. And if you even suspect fraud, then contact your financial institution to cancel all your cards and prevent access to your accounts - and report it to the police.
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