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Learn about what a savings account is and why it is important for you.
What is a Savings Account?
A savings account is a deposit account that pays you interest for having money in the account. Financial institutions may limit the number of withdrawals you can make from your savings account each month. They also may charge fees unless you maintain a certain average monthly balance in the account. It is always good to keep your extra money in your savings account for easy access and so it can gain money, and as long as the amount of money you deposit is less than $250,000 your money will be protected by the FDIC.
Why are Savings Accounts important?
Savings Accounts are important because banks will pay you money in the form of interest just for having money in the account, and the more money you have in the account the more they will pay you. There isn’t a downside to having your money in a savings account because your money will never decrease in value and the more you deposit the more interest you will earn.
What is Compound Interest?
Compound interest is interest calculated on the initial principal and which also includes all of the accumulated interest of previous periods of a deposit or loan. Compound interest can be thought of as “interest on interest,” and will make a sum grow at a faster rate than simple interest, which is calculated only on the principal amount. The rate at which compound interest accrues depends on the frequency of compounding such that the higher the number of compounding periods, the greater the compound interest. Thus, the amount of compound interest accrued on $100 compounded at 10% annually will be lower than that on $100 compounded at 5% semi-annually over the same time period. Check out this Compound Interest Calculator to determine how much money can be made based on initial investments, monthly contributions, interest rates, and how often interest will be compounded.
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Sources: https://www.investopedia.com/terms/s/savingsaccount.asp
https://www.investopedia.com/terms/c/compoundinterest.asp
https://www.youtube.com/watch?v=8edPzh71RIQ
https://quizlet.com/350548642/savings-accounts-flash-cards/
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