Banking/interest question?

Question

i have a savings account that is basically accumulating a couple of pennies every month. it is at a .15 percent rate. i am about to get 1000 dollars in it which will change it to a 1.25 percent rate.. how much would that bring after like a year..also i dont understand "X month certificate or IRA" -they all have the same rate. if you could check out the chart on this link that would be great http://www.nvsl.com/html/rates/savings_certificate.htm

if you could tell me how to figure out how much i would be making. also i plan on depositing more money in periodically-would that be factored in as well... also is this compounded like monthly or yearly or what..i dont understand alot of this so any help is very appreciated..thanks

Answer 1

First, I'm not so sure your savings rate is going to change to 1.25 percent once you reach one thousand dollars.  There is nothing on this web page that indicates it is a tiered account.  I suspect you will continue to earn .15 percent on 1,000 dollars, which comes to approximately 13 cents per month.

Certificates of deposit require that you lock in your money for a specified period of time.  In exchange, you receive a higher interest rate.  But, if you withdraw funds before the period ends (91 days for a 91-day certificate) then you lose some or all of the interest you had earned.

The site does not state the rate of compounding or other terms, so I cannot tell how frequently earnings are compounded.  Since the APY is higher than the interest rate, the compounding has to be more frequent than annually.  It's probably quarterly or monthly.

You can earn much better rates than these with either a credit union or an online bank such as ING.  Go to www.bankrate.com to check on higher-earning savings options.

A liquid CD, by the way, just means you can withdraw with either no penalty or less of a penalty than with a regular certificate.

To find out more about the differences among savings, money market and certificates of deposit, check the site I recommended earlier - www.bankrate.com or www.fool.com.  Both have basic investing information that is easy to understand.