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Understanding savings interest rates

Several books are written every year in the genre of understanding monetary business. If you want to grow your money exponentially, the basic understanding of savings interest rates is a must.

Banks rates may be hard for some people to understand. But, there’s an easy formula for understanding bank savings account interest rates. It is like T*M*R=O

T for Time
Time is an important factor here. You should be clear enough for how much time you are locking your money and after how much time you need your money back in the form of interest, without touching the capital money you kept.

Understanding savings interest rates

M for Money
Keeping a low amount of money for a long time will not yield you much. Keeping the high capital for a long time will possibly fulfill your expected interest.

R for Returns
For example, your objective is to gather $58,000; the question is how much amount you will keep and for how much time so that you get enough return.

  • By keeping $10 per month with an interest rate of 10%, the target of $58,000 will be achieved in 40 long years.

$10(money)*10%(return)*40 years (time)= $58000 (objective)

  • Now, the same amount of $58,000 can be attained in 20 years by increasing the capital money from $10 to $76 with the same interest rate of 10%.

$76/month*10%*20 years = $58,000

  • What if the return rate of the bank you have chosen is low. Repeating the above example, the objective of $58000 will be achieved in 40 years if the capital is $29.50/month.
  • If a person is saving $120 a month, with just 6% return, they will get $236,620 after 40 years.

What can this money do to you after all these years? If the return rate is 5% then $58000 can yield you an income of $2900 a year and it will increase to $3480/year if the return rate is 6%.

Everybody has their capability to earn money; the important factor is how to use that money in the future and for that, one must know bank interest rates on a savings account. This understanding covers how a simple habit of saving money can contribute to achieving your dreams.

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