Friday, November 27, 2009

What Savings Account is Right For You? (Read Time: 3 min.)

Cash is a wonderful thing but accumulating wealth is about having your money work hard for you and NOT you work hard for your money.

In Secrets of the Millionaire Mind: Mastering the Inner Game of Wealth , T. Harv Eker talks about the differences between the way rich people think and the way poor people think. In fact, he says the following: "Rich people have their money work hard for them. Poor people work hard for their money."

One of the first things you can do to build wealth, no matter how much you earn, is have a savings account that accrues interest and, thus, makes you money without you having to work hard for it. But, all savings accounts aren't created equal.

I called Bank of America this morning to find out the benefits of moving from a regular savings to a Risk Free 9 month CD or a High Yield 12 month CD. At the present time, my regular savings earns me up to $250.00 a year.

When I sat on the phone with a consultant and she started doing the math with me (keep in mind that interest rates change daily and you'll need to call and ask your bank's representative what the current monthly and yearly interest rates are), I found out that with a minimum deposit of $5,000, if I went with the 9 month Risk Free CD, I'd bring in an extra $216.00 a year and with the 12 month High Yield CD, with a minimum deposit of $5,000, I'd bring in an extra $630.00 a year.

Now here's where you have to get savvy about it.

Why would I move from my regular savings that's earning me $250.00 a year to a 9 month Risk Free CD that will only earn me $216.00 a year and will incur me a fee if I take the money out early? That's a no brainer: not worth my time.

However, the High Yield CD is an option because I'll earn $630.00 a year and that's almost $400.00 more a year than I would have earned with a regular savings account. $630.00 a year might seem small but if you're a long term saver (which everyone needs to be), then over 10 years, that's $6,300.00 you didn't have to "work" for and over 20 years that's $12,600.00 you didn't have to "work" for AND that is only ONE savings strategy you can put in place.

Every little bit helps but ask the questions, do the math, and know which account most benefits you BEFORE jumping into anything. Remember: Ask, ask, ask, and ask again until you are as clear as clear can be.

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