Saving: An Effective Way to Save $5,000 In A Year
In my last post on this topic, you learned how you can save $5,000 in a year by simply depositing a certain dollar amount on a bi-weekly or monthly basis. This is a simple method but not effective.
There are far better options when you choose a interest bearing savings account with a moderate opening balance and even a low interest yield rate of 1%.
In this article you will learn how you can get huge benefits by starting with an initial deposit of $500 or $1,000 and choosing a interest bearing savings account for compounded interest on your savings.
Saving Monthly Over a Full Year with an Initial Deposit of $500
If you can afford a relatively small deposit of $500 then you’ll be in a much better position when compared to bi-weekly saving in a non-interest account.
One hundred dollars is the minimum deposit allowed by most banks and credit unions to open a interest bearing savings account. This is a type of savings account where you can take advantage of interest yield rates up to 2% or more in some cases. A deposit of $500 can result in monthly payments that are manageable for most income earners, even those employed in entry-level positions.
What is an Interest Bearing Savings Account?
An interest bearing savings account is a savings account you open with a bank or credit union where you earn interest on the money you have in the account. Interest typically compound on a daily or monthly basis.
Table 1 shows what happens when you open a savings account with a minimum balance of $500 and with an interest rate of 2.4% that compounds on a monthly basis.
Note, that your monthly payments are slightly lower, $369.89 rather than $418 because you started with the $500 deposit in the saving account. Also, observe how the interest you earn accumulates over time. This is why putting your money in an interest-bearing account is more effective in helping you reach your savings goal.
Note that the first month’s balance includes the initial deposit used to open the account.
Saving Monthly Over a Full Year with an Initial Deposit of $1000
Table 2 below shows that with an initial deposit of $1000, your monthly payments will be $327, a bit less each month. Total interest earned during that one year period is also slightly higher.
This is the ideal way to work towards your $5000 goal. If you have $1000 saved already or if you can make short term sacrifices to save an initial deposit, then this is the best way to start.
Numbers Don’t Lie When It Comes to the Best Way to Save
The higher your initial deposit, the more interest you will earn and the less you will pay either monthly or bi-weekly to reach the $5000 savings target.
When it comes to savings, the more you start with, the easier it will be for you each month. Once you hit your $5,000 target, there’s nothing to stop you from continuing to save, and with compounding interest your money will continue to grow indefinitely.
Create a Budget to Save Effectively
Again, the best way to know how much you can save is to create an effective budget. Life Skills Instructor offers two video lessons that cover how to create a monthly and a bi-weekly budget. You can learn more about the budget courses here, https://lifeskillsinstructor.com/courses/read-budget-paycheck/
If you are a member of Just Do It Afraid, those lessons are available to you now for viewing.
Let’s hear your questions!
Dr. Linda