WHY A SAVINGS ACCOUNT? I write this from a consumer’s point of view. The difference between my savings account and checking account is that my savings account gives me interest at the end of the month. Some savings account may receive them quarterly or every three months. While the interest rates are low for savings currently they can fluctuate.

I have different savings account: regular savings account and GIC which is a government bond with a fixed or set yearly earning amount. Again the rate is pretty low right now to keep in line with low interest rates – I guess it’s to keep inflation low.

There are other options for investing that will give or yield you a higher return – what you get back – however the risk for this is little to none. Once a rate is fixed that is what you get for the term or arrangement of the agreement. With my boys’ money I did put them in a three year GIC and the rate was ok – 3.5%.  There is also the factor how long you want to invest for. The longer you invest and “tie your money up” often the better yearly rate or more money you will earn.

The Catch… Like a mutual fund or other investments (except for most stocks) there will be a penalty for cashing out early. Usually you will only receive the interest for the full year or time that the money has been invested.  This means if you put something away for 2 years and you take the money out 1.3 years into it, you may only receive the interest earned for the year and hopefully best case scenario you earn for the full 1.3 years.  Best to ask your bank advisor or financial advisor for they can guide you in this way.

THINK OF THE LONG-TERM BENEFITS LIKE BUYING A GOOD WINE THAT BECOMES MORE VALUABLE AS IT AGES. When money is put away and it is earning interest and then you re-invest it and you earn more interest, this is accumulated wealth.  It means that over time “the pot” grows!  While it may seem slow to grow versus other investing options, it is more safe and do not underestimate the power of “compounding” — you started with one and you add one now you have two.  You have two and add one and now you have three. You have three and add three and now you have six.

TRY THIS EXERCISE — If you had the choice of a penny a day doubling for thirty-one days VS a million dollars up front what will you take?? Take your calculator out and see the difference. I will take a penny a day doubling for thirty-one days.

I likened this to a good bottle of wine. If you are a collector of wines you know the value of buying something today and having the value appreciate over time. Some wines takes years or even decades to reach their full potential – drinking and earning.  A wine today that costs $50 may be worth $1000 in a few years from now. That may be an exaggeration however you get the point.

ASK YOUR QUESTIONS AND DISCOVER WHERE IN THE CLOSET THIS WILL GO?? Will your savings be part of the closet that is saved for good things and will only be used sometimes Or perhaps you will wear it for the season and then store it for next year.  Make sure you know what the “fabric” is — is it something that will last or is it cheap and will fall apart.  Ask your bank person/advisor if the savings account or GIC or whatever you choose is something that you want to invest for a year or two or three. The market is always changing and once you lock your money in you will receive the rate agreed. The market can fluctuate however your investment does not fluctuate or change.  This means if you lock in at 3% yearly interest and the market place is earning 5% you still earn 3%.

Just go in with a list of questions. No question is stupid and if the person does not know the answer ask someone else in the bank.  You need to feel that this choice is right for you.

All our best,

Sandra & Maritza

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