grow
your
money
So let’s say that you’re a
real miser (in a good way!):
You know how to stash your
cash instead of spending it. The
question then becomes where and
how to stash it.
The easiest and most basic
way is to open a savings account.
You can usually open a savings
account with very little money
(say, $25), and this kind of account gives you quick access to
that money if you need it. However, because the bank can’t be
sure you’ll keep your money in
the account, it often pays you
a very low interest rate for
simple savings.
Once you have a larger
chunk of savings that you can
afford to put away for six
months or more, look into the
following options, which pay
more interest:
• money market account: To open a money market
account, each bank may require that you have a
specific amount to start with (anywhere from
$1,000 on up). These accounts tend to earn more
interest than basic savings accounts.
• U.S. savings bonds: When you buy a U.S. savings
bond, you lend your money to the government,
which agrees to pay you a specific interest rate over
a set period of time. While savings bonds typically
pay higher interest rates than savings accounts, if
they’re cashed in within five years of purchase you
may have to pay a penalty that amounts to about
three months’ interest.
• certificate of deposit (the other kind of CD): A CD is
a bank’s version of a savings bond. When you open a
certificate of deposit, you agree that your money will
be unavailable for a set time period. In exchange,
you get a higher interest rate. At the end of that set
period of time (anywhere from six months to a few
years), you'll receive your initial deposit, plus the
interest you earned on that deposit.
4
The best part about saving is earning interest. “Interest” is the money that banks pay you in exchange for being
able to use the money you’ve deposited with them. There are two types of interest:
• Simple interest, which is calculated only on the amount of money you deposited. Your money grows slowly.
• Compound interest, which is calculated on your savings, plus the interest you’ve been earning. Your money grows
more quickly.
Either way, your money is growing all by itself. The sooner you start saving, the longer your money has to grow.
The way to wealth: compound interest
Let’s say you deposit $1,000 in a basic savings account at 2% simple interest (remember — basic savings
accounts tend to offer very low interest rates). Two percent of 1,000 is $20, so every year you’ll earn $20 interest on
your original $1,000.
Now say you put that $1,000 in a money market account that provides 5% compound interest. At the end of the
first year, you’ll earn $50. At the end of the second year, you’ll earn interest not only on your original $1,000, but on
your current amount of $1,050. This adds $52.50 to your account, for a total of $1,102.50. At the end of the third
year, you earn about $55 interest on $1,102.50. Over time, this can make a difference.
2% simple interest
5% compound interest
$1,300
$2,078.93
$300
$1,078.93
Total after 15 years
You’ve made
Compound interest has been called “one of the most powerful economic forces in the universe.” Let’s say that at
15, you open an account at 5% compound interest. If you put another $1,000 into the account each year for 10 years,
here’s what you’ll be lookin’ at:
Amount you invested for 10 years:
$10,000
Amount you have after 10 years:
$14,836
Amount you’ll have earned:
$4,836
By the time you’re 25 and ready to use the money on a new car or student loans,
Get financially fit!
you’ll have ment
vest
n
i
r
u
o
y
d
e
s
a
e
incr
%.
by almost 50
$$$
Moneytopia (https://www.saveandinvest.org/moneytopia)
In this online challenge, you have to manage your money until you achieve your “big
dream.” The loftier your dream, the longer the game will last. To win, keep careful track of your finances,
pay your bills on time, and take care of the day-to-day things that affect your finances.
The Gen I Revolution
(www.genirevolution.org)
Go on 15 interactive missions to complete a variety of activities around important personal finance
concepts. Within each mission, you’ll meet a character facing a particular financial crisis. Learn about the
crisis, strategically select your “operatives,” and then complete activities to solve the mission.
growing your money