Personal Finance Tips - the most powerful force in the Universe - compound interest

You may ask what is the secret to wealth? Earn more money? To a certain extent, yes, this is a good answer. But the best thing is to make the money you already earn more money for you. Often this small difference in thinking makes someone a millionaire from a wannabe.

The thing is that the money you earn through hard work is nothing compared to what you can earn by leaving your money work for you. There are some simple steps to get your money make more money.

The best thing to do is add the savings to the budget, which means that you should pay your savings account just as you would pay the light bill. You can ask your bank to automatically deduct savings from your paycheck, or you can put your savings into an account which you can access with an ATM card. That way if one is tempted to spend the money, you give a second thought.

Compound interest has been called by Albert Einstein "the most powerful force in the universe." With compound interest, not only your money makes money, but money makes your money earns money.

But how does it work? With an interest rate of 3 per cent of your $ 100 deposited into an account would be $ 103 after one year. But you earn interest not only on your initial deposit, but interest does your initial deposit. If you set aside $ 100 every month, at the end of your bank account would have $ 1,223.81. The $ 1,200 was saved and compound interest $ 23.81in.

Because of compound interest, you often see two rates in savings accounts announcements: the APR (annual percentage rate) and APY (annual yield). The second is the percentage of the account earns compound interest really. APY is a bit 'higher than the APR, depending on whether the interest is compounded monthly, quarterly or annually.

There are many computers of interest compounds that are found on the Internet. With these it will be able to determine how your savings will grow at 5, 10, 20 years. All you have to do is enter the amount you are saving, the percentage rate and how interest is compounded.

You should carefully shop around for the best deals, traditional savings accounts do not pay much interest these days. And you might even consider an online only account, as you can pay three or more times the interest offered by a normal bank or credit union ....