Having money is one thing, but making that money grow is something else entirely. For those who are looking at their account options and wondering which option to take, it’s always better to take the option with the most interest. As long as one leaves money in an account it will earn interest, and that interest will slowly grow the amount larger and larger.
Yes and no. On the one hand it’s true that an individual will make money by putting money into an account that yields interest. The rate of that interest is often in fractions of a percent though, so making money grow takes either a great deal of funds, a lot of time, or both. If one is only earning .01 percent, then the money has to stay in the account for the long haul in order to be anything resembling profitable. Fortunately for investors there are a range of accounts with different interest rates and purposes.
The most well-known type of account that yields interest is a savings account. These accounts typically have a limited number of withdrawals one can make in a month, but they come with an interest rate. There are also different versions for children, for students who are trying to save young.
An individual retirement account, an IRA is a savings account that comes with high interest. Beyond the interest rate though, deposits to an IRA are tax deductible for someone who doesn’t have a retirement plan through his or her employer. Interest is tax free as well, but the money in the account cannot be withdrawn without penalty until one is 59 and 1/2 years of age. These accounts are meant to save for retirement, and the rules they use are quite serious.
Money market accounts are a hybrid between a savings account and a checking account. These accounts allow more withdrawals than a typical savings account, and they do offer an interest rate. On the other hand it is still an impractical account for someone who will be using it for regular withdrawals. Essentially they’re savings accounts you can draw checks on, which makes them more ideal for some users than others.
Will Accounts With Interest Make You Rich?
No. When investors look to make money that can support a lifestyle, or which can be banked for retirement, they tend to seek other methods besides interest bearing accounts. Buying government bonds, putting money into CDs, or even buying stocks are much more common for those who want to get rich. By doing any of these things though investors are tying up their money. By using an interest bearing account users typically still have access to their money (even IRA accounts, though that access isn’t free of cost). This access means that if life events happen they can take their money out of whatever accounts they’re currently in and use it to pay their bills.