CARS HOMES JOBS

Sadly, savings account yields very little interest

Friday, May 9, 2014
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Zoe Diaz-Parker
Zoe Diaz-Parker

“Want to see your bank statement?” Mom asked me, waving a sheet by her head.

“Sure, why not?” I examined it. “So … I’ve only gained 36 cents in the past year?”

“Yeah. The banks don’t give back much interest.”

“That’s ridiculous. I could find more money on the ground than that.”

And that was where my idea sparked. I decided I would put my theory to the test. For the next year, I would collect any money I found on the ground in public. At the end of the year, I would count my money and see if my hypothesis was indeed correct.

Money was surprisingly easier to find in the streets when your eyes were on the lookout for it. Change popped up everywhere, from the grocery store parking lot to the school hallways. By the end of the first week, I had already collected a fair amount of assorted coins.

As I saved more found money, I began to wonder how the bank works. Aparently, when people invest money in the bank, the bank pledges to repay the investor with interest added to their principal. Principal is what the bank calls the money that you gave them. Interest is extra money added to the principal at an agreed upon rate. In the meantime, the bank is free to use the investor’s money. They can loan the money to other people or businesses. The people or businesses they lend money to must later repay the bank with a higher amount of interest.

Let’s say I invested in the bank. They agree to pay me 1 percent interest for a year. They loan the money I invested to a business and charge that business 5 percent in interest. This is one way the bank can make money, and in this example, they earn 4 percent interest from my money.

In my case, I invested $1,110 in the bank. My interest rate on a savings account was only 0.02 percent. By the end of one year, I had earned 36 cents in interest. At this rate, it would take me over 3,083 years to double my principal!

By the end of the next year, the money I had found on the ground totaled $9.84. This means I earned about 27 times more money off the ground than I earned from the interest I received from the bank in one year. I earned about 2,600 percent more from the ground!

I believe we should look for different options, such as stocks and bonds. By using a stock, there is an increased risk that you could lose some or all of your principal, but a greater chance of higher profits. A bond gives fixed income at a specified time. Therefore, I would need what’s called a diversified portfolio, meaning I would have money in a combination of investments, hopefully maximizing my interest potential while keeping my principal. Now, I’m in search of bond and stock options that I can invest a portion of my savings in.

 
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