A very ignorant question

[BuffaloIsCursed]

I recently opened up an online based savings account(due to a higher interest rate, wont mention where because I dont think thats allowed) I'm only 19 and have always had just a checking account so Im not sure how this interest rate thing works. They say that the APY is 2.65% and that it compounds monthly. Ok, I get the impression that they pay you 2.65% of your balance every month. I deposited 100 dollars a week ago and at the end of the month, the bank only paid me 3 cents!! Can someone please clarify this for me? Thanks. Or if someone can tell me how to better invest my money, I would appreciate it.(Anything but stocks because I dont have enough money for stocks) Like my economist teacher once told me, the worse thing to do is to let it sit there and rot in the bank. Thanks

[rjp]

I have a money market account that compounds daily and credits the interest monthly. Let's assume yours does this monthly. Your 2.65% APR is actually just 0.22% per month, so $100 * 0.0022 leaves you with roughly 22 cents after the first month. However, you said you only had the money in for 1 week. As such 3 cents seems about right. So, after the next full month, your $100.03 should be $100.25. After the first full year without any added investment you should have roughly $103.60. This may not seem like much, because, well, it's not. However, if you continue to save money at regular intervals your compounding interest can really start to add up over time. I suggest you slowly save whatever you can per month (treat it as if you have a bill to pay, that you MUST pay), and save it. If you add $100 per month you should have $1317.10 after the first year (just $17 in interest). However, after 5 years of $100 per month you have roughly $6500 ($400 of interest). Not too shabby.

Once you get a grand (or more) look at buying into a few mutual funds and setup an automatic investment plan. This could get you about 8% average return per year after fees, which is pretty good. It just takes time. Just understand that the sooner you start the more cash you have when you're old!!

[rjp]

Oh, and your economist is a jackass! Sure, there are MUCH better returns out there than the 0.6% you get from a normal savings account (like the 3.0% you can get from some money market accounts), but having it in the bank is better than not saving at all!

[BuffaloIsCursed]

Thank for the reply rjp. And concerning my economic teacher, he was referring to the fact that it is a bad idea to leave money in the bank and do nothing with it because of inflation.

[rjp]

I figured as such, but still, buying hookers is better than somewhat beating inflation! lmao

[Kevin]

What RJP says: It just takes time. Just understand that the sooner you start the more cash you have when you're old!!

Is probably the most valuable advice anybody will ever give you.

The power of compound interest is insane. Your money will double every six years at 12%. Now with that being said, dont expect to get 12% every year but it is attainable if you take the time to learn how to play the game. Not every year, but you can average 12% over a decade so to speak.

Nice take RJP, we appreciate you taking the time to set this guy straight. This shit is so important and not talked about very much.

I echo RJP, save while your young and let that loot compound, you'll be so glad you did. Follow his advice at getting into mutual f unds or stocks too. No amount of money is too small. There are programs out there where you can buy fractions of shares. Save save save!