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.
Showing posts with label interest. Show all posts
Showing posts with label interest. Show all posts
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.
Wednesday, August 27, 2008
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.
Subscribe to:
Posts (Atom)