Do you remember the “good old days” when you earned money for mowing the lawn and washing the dishes? Even though you probably didn’t earn a ton of money performing these everyday household tasks, you still enjoyed watching your little piggy bank grow, right? We were all kids once, so we understand the excitement of money growing over time.
Just so you know, bank interest on a savings account is a lot like filling your little piggy bank up. While the money that you save on a regular basis may not seem like much now, the interest that is earned over a long period of time could greatly pad your savings account.
What Exactly Is A Savings Account?
Before we discuss how interest works on a savings account, we first need to answer the question “What is a savings account?”
In simple terms, a savings account is a safe place where people can deposit money and earn interest.
Contrary to traditional checking accounts, savings accounts typically earn higher interest. The exact interest rate that a savings account can earn depends on a wide variety of factors including the current economy, the specific financial institution, and the amount of money in an account.
Ready to learn more? Just keep reading.
Why Do Banks Pay Interest To Customers?
Many people often wonder why banks would even pay interest to their customers.
Just think of it this way: When you open a savings account, you are pretty much establishing a partnership with your trusted financial institution. By regularly placing money in your savings account, you are offering a financial institution the opportunity to lend your money to customers. Many banks choose to offer borrowers credit cards, loans, and mortgages with the money that you lend them. In return, you’ll gain interest on a savings account. Doesn’t this sound great so far?
How Does A Savings Account Generate Interest?
There are two types of interest that can be earned on a savings account: simple or compound. Make sure that you know which interest type your savings account uses because it will affect the amount of money earned over time.
Simple interest is pretty easy to understand. To determine the annual percentage yield or APY, simple interest will use the original amount of money that was placed into a savings account. For example, if you started with $2,000 in your savings account, the bank will use the simple interest to calculate the APY based on $2,000.
Compound interest is also fairly easy to understand, but the concept is more complex. The compound interest uses the original amount of money placed in your savings account and any interest you have previously accumulated over a specific amount of time.
Most banks will calculate the interest accumulated daily if a savings account is compounded each day. In addition, many banks will calculate the interest on a monthly or yearly basis if the interest on the savings account is compounded every month or year. For instance, if the original balance in your savings account was $2,000 and earned $5 dollars in interest, your financial institution will use $2,005 to calculate the interest next time.
How Often Will A Savings Account Earn Interest?
Most savings accounts earn interest on a daily basis, and many banks pay interest to these accounts every month.
If you are unsure about when your savings account earns interest, give your bank a call today.
Why Should You Open A Savings Account Immediately?
At this point in the article, you are probably realizing that there are many advantages to opening a savings account.
If you know that you won’t need a specific amount of money in the next few months or years, your best option is to put the money in a savings account that earns an attractive interest rate.
Do you have trouble saving a large sum of money? Whether it’s your first time opening a savings account or fourth time, you’ll want to set reachable savings goals like $25, $50, $75, and $100.
After you deposit $1,000 in your savings account, you should probably consider saving three to six months of living expenses to prepare for difficult financial situations.
Open A Savings Account With Crane Credit Union
When you want to save for the future, why not open a savings account with Crane Credit Union?
Crane Credit Union offers extremely attractive interest rates, so your savings can accumulate at a gradual pace. Just deposit money in a savings account on a regular basis, and then watch your money grow.
With Crane Credit Union, saving is truly a cinch. Please contact us today to open a savings account. We are always available to assist you in reaching your long-term savings goals.
We look forward to partnering with you soon. Thank you for considering Crane Credit Union.