What do you do with your money? Do you spend it or save it, or do a little of both? Financial experts tell us that saving money is a very smart idea. Some people "save for a rainy day," as the expression goes. They are planning ahead for a time when money might be tight or when an emergency might call for quick cash. Others save their money toward a specific goal, such as a long-planned vacation to an exotic destination, or an expensive item such as a new television.
Whether you're saving your money for an emergency or for a purchase, a savings account is one good way to do it. Banks offer savings accounts that earn interest as an incentive to get customers to deposit their money there. Interest is usually expressed as a percentage, so you earn a percentage of the money you deposit in the account on a regular basis. So, if you deposited $100.00 and earned 4% interest, the amount in your account would be $104.00. The amount of money in your account is your balance.
Besides the kind of CDs you listen to, there's another kind of CD: the certificate of deposit. This is another way to save money. Typically, banks offer CDs for a specific period of time, such as 6 months, 1 year, or 3 years. The longer the term of the CD, the higher the interest rate you are paid. Also, the higher the amount you're willing to deposit, the higher the interest rate the bank will pay. So you usually earn more than you would in a regular savings account. The downside is that a CD ties up your money for a long period of time. If you decide to withdraw your money before the CD's term is up, you'll have to pay a penalty.
Now that you've seen two of the options for saving your money, you might find this fact interesting: When it comes to saving, 72 is a magic number. If you divide 72 by the interest rate you are being paid, you can see approximately how long it will take you to double your money. So, if you are earning 8% interest, you can divide 72 by 8 and see it will take 9 years to double what's in your account! Bankers call this the "Rule of 72," but it can be a "golden rule" for you if you get in the habit of saving money.