So many accounts, how do you know which is right for you?
When you go to the bank, you can open a savings and a chequing account. A chequing account is for your daily banking, where you can receive payments and send money. Originally, it would have been used to cash and write cheques, but with online payments and e-transfers, there are many faster and more secure ways to send money. A savings account, or a high-interest savings account, is just that. You can deposit money into your savings account to save for the future, and make a little bit of interest.
There are a few questions you should ask when you are considering any account:
Is there a minimum balance required in the account?
Are there any fees for this account and how much?
What is the interest rate?
Many accounts will have a monthly fee, such as a $5 monthly charge for the pleasure of letting the bank hold your money. There will also be a charge if you withdraw more than what is held in the account or if you have a payment pulled without enough money to cover it, sometimes referred to as an NSF or non-sufficient funds charge. Another fee you may see is a charge if you exceed a certain number of transactions on your debit card. Some fees may be waived if you keep a set amount of money in the account, but check with your financial institution about the account fees and get ready for a list.
An interest rate is an important factor in any savings account. After all, the higher the interest rate the bank pays you to keep money in the account, the more money you save. Interest rates always change, but now you will receive around 1 - 3% per year on the money you hold in the account.
So how much interest do you earn with your money at an interest rate of 3%?
January 1st Deposit | Interest Earned Annually | December 31st Balance |
$100 | $3 | $103 |
$1000 | $30 | $1030 |
$100,000 | $300 | $100,300 |
The next year, you are starting with the ending balance and you are now making interest on top of the interest you earned the previous year.
That, ladies and gents, is how compounding interest works.
These are the basics of bank accounts, but there are more accounts to explore when it comes to investments.
Visit waverleywealth.ca for more information on accounts.