What’s the best way to save money and make it grow? You could operate a bank account. Will a savings accounts serve the purpose? Or are there other options?
In the earlier columns, we learnt that the first step towards financial freedom is to save money. If you are doing this already, you are doing significantly better than most of your friends. What else can we do to get one step better than merely saving money? Let us find out.
There are different ways of saving money. You can save money in a piggy bank, like most of my young friends do. However, please note that saving money in a piggy bank does not make your money grow. This is because piggy banks do not offer any interest on your savings. Well then, who offers interest for your money? Banks, of course! But then there are two ways in which you can earn interest by keeping money with your bank.
Savings account is the easiest account to open and by now most of you would have one. But though a savings account gives you interest, it does not amount to much. At best, it is around five to six per cent. While this is way higher than what you get in terms of interest from a piggy bank, it is not all that high. The other option is to open a fixed deposit, where you get back your money after a certain number of days, called the “term” of the deposit. But the banks pay you higher interest for this minor inconvenience.
There is also an important consideration regarding interest income from bank deposits, that you need to know. You are young now and in the process of forming good money habits that will help you in your life.
However, the bank deposits that look so cool because of the interest will be less appealing as you grow in to an adult. Interested to know the reason?
Young World Money-Wizards Quiz # 27:
No sooner than we start earning money, we start paying personal income tax to the government. Do you know the highest marginal personal income tax rate in India?
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