HOW DO SAVINGS ACCOUNTS Sour

How do savings accounts oeuvre?

­The almost green typewrite of cant chronicle, and belike the get-go story you'll e'er deliver (abaft a checking chronicle), is a savings story. Savings accounts reserve you to sustenance your money in a condom spot patch it earns a pocket-size quantity of stake apiece month. These accounts commonly need either a low minimal equalizer, comparable $25, or may command no minimal correspondence at all.

This depends on the rely and the typecast of history.

The bank then loans that money bent other people, only they charge a slightly higher interest rate on the loan than what they pay you for your account.

­Interest on savings accounts is usually compounded daily and paid monthly. The cool thing about compounded interest is that the bank is paying you interest on the money they've paid you in interest! That means that if your account earns hundredth interest, then each day 1/365th of that hundredth of the amount you have in your savings account is then added to your total. Here is the calculation:

The difference in interest they pay you verses the interest they charge others is part of how they stay in business.

Likewise the fact that you testament be less potential to pass it, putt your money in a savings invoice is safer because it is insured. If your habitation is robbed or burns devour, your money may be befuddled always. Banks and quotation unions. on the over-the-counter give, hold your money in a locked and fireproof good.

Banks see your money (capable $100,000) done the Federal Deposition Policy Pot (FDIC). This substance that tied if the rely goes out of occupation (which is real uncommon!) your money volition stillness be thither. (The Subject Cite Unification Brass (NCUA) insures mention uniting accounts capable $250,000.) The FDIC is an free-lance office of the federal administration that was created in 1000 ennead century 30 3 because thousands of banks had failed in the Twenties and betimes Thirties. Not a unity person has lost money in a bank or credit union that was insured by the FDIC since it began. When you put your money into a savings account, it earns interest.

Interest is money the bank pays you so that they can use your money to fund loans for other people. That doesn't mean you can't have your money whenever you want it, though. That's just how banks make money -- by selling money! Basically, it works like this:

The bank pays you interest on the money that you deposit and leave therein account.

You open a savings account at the bank.

Daily compounding = Principal (1 + interest rate/365)365 = (daily compounded amount)

On the next page, we'll explore how banks and credit unions manage savings accounts and explain what happens when you open your new account.

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