Day 4: Conquer Your Savings
Posted by LearnVest on February 18, 2010 at 5:03 PM
Your savings accounts are the foundation of your financial future. Say that out loud. LV Bootcamp is letting you in on a big secret: watching your money grow in a savings account isn’t magic—it’s just math! Do the math.
There are three main types of saving accounts, including basic savings, CDs, and Money Market Accounts. In general, ignore the different names, they all help your money grow. Whichever you choose, you must look for:
•No monthly fees for having the account
•A low minimum balance (or none at all)
•FDIC insurance coverage
•The highest possible interest rate
Obviously, a high interest rate sounds like a good thing. To really grasp how your savings account grows your money, though, you have to understand APY and compounding interest.
APY (Annual Percentage Yield) is the yield (AKA, amount) your deposit will earn over the course of a year. The APY takes compounding into account.
Compounding is interest you’re earning on the interest your investment has already earned. When the gains you make on your investment start to earn money and those returns start to earn money, and so on, your money grows exponentially.
Savings were calculated assuming regular monthly deposits earning an 5% return, compounded monthly.
Source: Bankrate - Simple Savings Calculator
|Figure out the current status of your savings. Do you have one or more savings accounts? What kind of savings accounts are they (CDs, Money Market Accounts, etc.)? How much interest are they earning? Know exactly how much you have in savings to date.|
Action Time: 5 minutes
Make sure that your savings account offers the above four things. Make “no fees, high interest!” your new mantra.
Action Time: 2 minutes
Ensure that you have a savings account that only you control. If you don’t, open one now! It’s important to have an account that isn’t tied to your parents, your boyfriend, your husband, or anyone else, so that you have a safety net all to yourself.
If you don’t have a good savings account or a savings account all to yourself, open one now. NOW! Simply pick your bank of choice from the LearnVest Approved Accounts (We’ve vetted the accounts that meet the above criteria). For step-by-step help on opening an account, see the LearnVest checklist, “I Need a Savings Account,” we’ll hold your hand!
Action Time: 13 minutes
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