How to Save Faster
Regardless of the income you earn you should think about the use of a high interest savings account to safely store your extra funds and make your money grow. It’s a fact that many people leave their excess money in their main bank account that does not earn interest. Storing money in a non-interest earning account is a wasted opportunity and you can multiply you money over time through the use of a high interest savings product.
A high interest savings account generally yields an interest rate greater than 2.5%. Most of the high interest products offering the most competitive interest rates and online savings accounts such as HSBC and ING Direct.
Why Interest Matters
Larger capital growth occurs with a high interest savings account because you will receive interest on the principle amount of money that you put away into a savings account. The principle, combined with the interest that you earn on that principle, continues to build on itself – with little-to-no maintenance on your part.
For example, if you put away $10,000 into a high interest savings account, such as an online savings account, with an annual interest rate of 4.0%, you will have accrued $400 by the end of the year without having to lift a finger. By the end of the second year, you will have earned more than $800 – just for keeping your money in the high interest account.
The passive income that you receive from your high interest account can help you achieve financial security and build your nest egg … without the need for you to take up another job or working all the overtime you can get.
Rate of Inflation While earning passive income from your savings seems like a strategic way to, basically, earn money for doing nothing, keep in mind that there is a national rate of inflation, which is usually about 3% per year.
The rate of inflation is based upon the average increase in prices which therefore causes the real value of the dollar to fall. Therefore, if your money is tied into a high interest account that returns 4% interest a year, you have to subtract this rate of inflation in order to understand exactly how much your money is actually growing.
Types of High Interest Accounts
There are two popular types of high interest accounts that you may want to consider: money market accounts and CDs.
A money market account is directly linked to the Stock Market and is not guaranteed. As the market falls, so can your interest rate. However, because it is tied to the Stock Market, you can also lose your principle when you invest it into a money market. PayPal provides one of the most competitive money market accounts currently available online. A certificate of deposit (or CD for short) is a very stable high interest account with a fixed term and return. It is often available through online savings banks such as ING. When you put your money into a CDD you have to decide an initial period of time for the investment such as twelve months. During the agreed period your funds will grow according to the interest rate agreed. However, there may be penalties if you wish to remove your money before the period of time has expired.
There are a number of new online banks entering the market with names that may not be familiar to you so be sure to check out the company before handing over any money. One of the easiest methods is to do a search on the Better Business Bureau website and look for any claims filed against the company. Once you’re comfortable with your selection of accounts, start putting that money away to watch it grow!