Beverly Butler: Hi! I'm Beverly with Wells Fargo & Company. Today we're discussing how the power of interest can have a major impact on your savings plans and its success. It's very important to create positive savings habits, so you can plan for large purchases, be ready for unplanned expenses and achieve your savings goals.
Earning interest on what you save will make your savings grow much faster and can help put you on the road to financial independence. When it's comes to your savings it's important to remember that not all interest is created equal, there is a big difference in the results you get from Simple Interest as opposed to Compound Interest.
When you put your money into an interest earning savings account, the amount of interest you'll earn depends on three factors. The interest rate, the length of time you keep the money in the account and the type of interest.
With Simple Interest you'll earn interest only on the original amount of the deposit you made into the account. But with Compound Interest you earn interest on your original deposit plus you earn interest on the interest your account has earned over time. In other words your interest keeps building and building upon itself.
Another factor is how often your interest is compounded which can also have a significant impact on the amount of your savings over a time. Let's take a look at a savings and investment principal called the Rule of 72. This basic principle really does a good job of showing the importance of saving and how your money can double in value over time. Use this as a starting point to begin learning about the power of interest.