How to Make Your Savings Rocket
High interest savings account offer a safe and reliable way to get a return from your money over time. While they may not offer the potential of such high returns as other options such as shares or managed funds they come without the risks those options have. Find out how to boost your savings faster than ever.
It's all too easy to live from paycheck to paycheck without any money left over. However, you should never leave yourself without money for larger purchases or unexpected costs. It's important to budget each month and allow yourself to save some money away each month regardless of how much you bring home as income. You can make your savings grow much faster over time by placing your money into a high interest savings account.
A high interest savings account generally yields an interest rate greater than 2.5%. The majority of the highest interest savings accounts are online savings accounts, such as ING and PayPal.
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. At the end of year two you would have earned over $800 just by 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.
Before investing in a high interest account, be sure to do your own research into the legitimacy of the account by reviewing claims filed with the Better Business Bureau and performing a simple online review search. Once you're comfortable with your selection of accounts, start putting that money away to watch it grow!
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ABOUT THE AUTHOR
Find out how much you could make using this savings calculator. Richard Greenwood writes on a range of finance and banking topics as well as being the Director of the Click 4 Group of finance websites which compare banking products including the Bankwest Telenet Saver.