A savings account is another way of investing my grandmother's money.
I basically am lending my money to the bank and they pay me interest to
loan them the money. It sounds simple, but the interest rates on savings
accounts are low and the stipulations for obtaining a savings account are
often confusing. I also have found that there are differences
between credit union savings accounts and savings accounts from banks.
For instance, a local bank offers a 2 percent interest rate (simple interest)
and they require a minimum opening balance of $100. Also, if a balance
of $300 is not maintained, there is a monthly service charge.(9)
Then, I visited a local credit union that offers 2.72 percent interest (simple
interest) with a minimum of $5 dollars to open and maintain the account
with no service charge and minimum balance requirements. The only problem
with a credit union is that you have to be a member. But, there are
possiblilites to join a community credit union and if any of my family
members are members, I can join also.(7)
If I am going to invest my grandmother's money in a savings account, I would want to do it at a
credit union because I would have a better interest rate and I wouldn't
have to hassle with minimum deposits and service charges. These factors
will inevidably take away what little interest I may earn.
Money in the Bank
Money in the Credit Union
So, the difference between the credit union and the bank is $19.76. This doesn't seem like a huge difference,
but it does show me that even .72 percentage points makes a difference in
how much interest I will be getting in return. Plus, larger investments
over longer periods of time yield a better outcome. However, the interest
earned on the account is subject to federal, state, and local income taxes
at regular rates.(8)
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I figured out the difference in interest earned through the bank versus the
credit union and here is what I came up with: $500 at the bank for five
years [$500(1+.02)5] earned me $552.04, which means I earned $52.04.
Compared to the credit union, [$500(1+.0272)5], earned me $571.80 which
gives me $71.80 of interest.
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This page was created by:
Chris Cook, Dallas Barrington, Leigh Ann
Boudreaux, Marc Pena, Parke Presuell
This Page Was Last Updated November 15, 1997.
