Savings Account: How The Interest Rates Work
You have probably heard about the different ways of saving money. Our parents and grandparents are always talking about saving money instead of investing it when it comes to family finances but, is it worth it nowadays?
We are living a totally different reality, and that’s why we simply shouldn’t continue working and saving money in the way our parents did. Having that in mind, we made this article to talk about something that many people think about when it comes to their personal finances: a savings account.
The interest rate in a savings account could be seen as an ally if the rate is sufficiently enough to accumulate a certain amount of money every month. The bank pays its clients to keep their funds on deposit and that will generate extra money on your savings account.
Best Interest Rates Throughout The Years – Savings Account
We have experienced lots of changes on this matter. The greatest interest rates we have had was in the ‘80s with 20% and in the ‘70s with 10%. At that time, it was very convenient for people to invest in their ‘future financial security’, but if we take a look at what’s been happening since 2020, the interest rates are actually very low, nearly zero.
The interest rates for this year is not encouraging at all for the young generations. This is the main reason why people don’t keep their money in their bank accounts and also, the reason why the different perspectives between the generation of our parents and the new generations exists.
A little bit of Math
If we take a look at the Chase Bank interest rates for savings accounts, we see that they offer a 0.01% of annual percentage in their savings accounts. If you take $1,000 to this bank, at the end of the month you will have earned 0.83$ following the formula of: 0.01% annual percentage yield divided by 12 months, that means you’re getting 0.00083 an interest rate on a monthly basis.
A savings account won’t let you be rich, just because your money isn’t growing in any way
If, for example, our parents had done the same with $1,000 in the ‘80s and the bank had offered them an interest rate of 17%, by the end of the month, they would have had $1,014.20. Not bad for something that is passive as it’s accumulating on its own.
Saving Money on a Changing Economy – Savings Account
What is the reason for low interest rates? It’s very simple. The Federal Reserve wants you to spend your money. Why? Because we are going through tough times and this is when people tend to hoard their money in banks and if that happens, the economy is going to shut down. With these measures, they encourage people to spend their money.
They even make it easier to go to the bank and take a loan or mortgages. People start to apply for SBA loans because the rates are so low that it is relatively cheap to borrow money. The Fed would like you to invest that money on real estate, stock markets or feel free to do whatever you want with it, except hoarding it. When tough times are in front of us, the more money flows, the more you can manage to keep the economy afloat.
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