How To Become Rich

 
   

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The 4 types of savings account are:

1. A demand account - variable rate of interest; allows you to withdraw your money immediately if you need to. 

2. A notice account - variable interest rate but you must give notice to withdraw money, typically one or more months' notice. In return, you get a better rate of interest.

3. A term/fixed-rate account - fixed rate of interest once you leave your money for a fixed period of time, say one or two years. If you need to withdraw your money earlier, you will usually get less interest. 

4. Guaranteed Bonds - similar to fixed term, this is a fixed rate accounts but you may need to invest a lump sum of at least $5,000. You get a guaranteed rate of interest provided you do not withdraw your money until the end of the savings term, which is generally between three and five years. 

 

Whichever type of accounts you choose to grow your money with, making regular automatic deposits is critical. Most people are not frugal enough to be able to stash money away unless it is automatically deducted from a checking or savings account at regular intervals. Setting up a regular savings time-line is going to be your best asset. To effectively grow a savings account, you have to restrict yourself from the temptation to transfer those funds to your checking account and have your money go directly into your investment accounts instead.

 

There are an increasing number of seniors who are unable to retire and the overwhelming amount of outstanding student debt with middle-aged folks which is a serious reminder that account holders must save for long-term goals.

 



The type of savings option you choose depends on the goal of your savings strategy. It's essential to know what you're saving the money for so as to determine when you need to get access to the money saved. It may be appropriate to have a few different kinds of savings accounts as you may be saving for emergencies, college, a new home or for retirement. The financial need/goal is different in each case so the vehicle through which you save and the amount saved is determined by the final need/goal. In this case, give each financial goal a dollar amount and time frame.

Why Interest Rates Don't Mean Very Much

It's vital to understand that banks can quote interest rates that compound daily, weekly, monthly, quarterly, or yearly. When comparing one bank savings account with another, make sure you ask your bank for the Annual Percentage Yield (APY) figure in addition to the interest rates. Over a 12 month period, an interest rate that compounds yearly could yield less money than a lower interest rate that compounds daily. Banks typically quote both interest rates and APYs, but only APYs give a true representation of the yield as the APY is calculated the same everywhere.

Automatic Saving - Set It and Forget It!

No matter what savings option you choose it's a good idea to make the saving automatic. Set up a Standing Order in your Checking (Current) Account for say the 1st day of every month and transfer the amount automatically to your savings account.

In summary, it's ok to automatically save money into a demand or notice period savings account but if I were you I'd be investing it elsewhere double-quick...within at least 6 to 12 months of it being there.

Why Interest-bearing Accounts Don't Bear a Great Deal

The truth is...you don't make any money in bank accounts (in real economic terms), simply because you're not supposed to. Sad but true I'm afraid. The interest rates you earn on a checking (current) or savings account often doesn't exceed the average annual inflation rate, which has been on average just over 3% since the 1920s through 2010. In short, you end up losing purchasing power as the value of your money in real terms decreases. My personal recommendation is don't be duped by glossy advertisements, websites and posters in your local bank offering what you think are good interest rates. They're never any good in real economic terms. Once again, the only person making money in real terms out of your saved money is alas your bank!

Savings - Where to Go Next for Higher Yields

Apart from the typical bank savings or deposit account option, you may want to consider slightly more advanced savings options such as Certificates of Deposits (CDs) or Money Market Accounts (MMAs). Please visit our website or check out my other articles on Wealth Building and Savings and Investment Strategies to find out about Certificates of Deposit, Money Market Accounts and other "more advanced" savings and investment strategies.

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Fixed Rate Bonds 'effective Tool To Beat Inflation'

 
   

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A basic rate taxpayer currently needs to be earning at least 3.88% from their account to stop inflation eroding their savings, while a higher rate tax payer must earn 5.17% - a rate that's unheard of in today's market.

Savers hit hardest by the rise in inflation are those that rely on the in interest earned from their savings as a source of income, many of whom are pensioners. The average savings pot held by a basic rate tax payer is in effectively being eroded at an annual rate of 2.51%.

 

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Darren Cook, spokesperson for Moneyfacts.co.uk, said: “Inflation is a stealthy enemy for savers and when rates are low, it quietly erodes the spending power of a hard earned nest egg. Savers may have had a short respite from a marginal fall in inflation, but savings rates have hit a plateau and may be there for a while.

“The average one year fixed bond rate has fallen from 3.07% in January to only 2.54% today and the average five year fixed bond rate has fallen from 4.56% to 4.08% for the same period.

“The average instant access savings rate is still at rock bottom at a rate of only 0.74%. The only trigger for any improvement in savings rates may be a surprise increase in the Base rate by the Bank of England, but this is most likely not to happen soon.

“To just break even, higher rate tax payers need to find an account paying 5.17%, a level that is nigh on impossible to achieve.

“Only 87 out of a possible 1,244 accounts allow a basic rate tax payer to just break even at 3.88%. 51 ISA accounts beat inflation at 3.10%.

“It is difficult for savers to try and beat inflation but at best, they should try and stay within an arms length and try and weather the storm of low rates and high inflation.”

Some economists believe that the base rate will remain at it's historic low of 0.5% until 2014. If this were the case, then by investing in a 4-5 year fixed rate bond could allow you to earn at rate of 4.75% - around 2% higher than some of the best savings accounts on the current market. ICICI fixed rate bonds offer a range of terms and sit at the top of many comparison tables.

If you're willing to lock your funds away for a period of 5 years, you could earn 4.75%, with the ICICI fixed rate bond.

Ensure your savings aren't losings

A savings account that pays less than the rate of inflation is eroding your wealth...

 

Imagine inflation is 5%
A shopping trolley of goods costing $1,000 this year will then cost $1,050 next year.

And the top saving account pays 3%


You put £1,000 in it, and in a year, after basic tax, you've $1,024.

Therefore you've no longer enough to buy the goods


Effectively your money has shrunk, so it's a LOSINGS, not savings account.



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