Your Money Should Work as Hard as You Do - December 2005

Eliminating the need to borrow from your parents is a liberating experience. Though the interest rate on those loans was probably one of the best in the market, you may have outgrown the Bank of Dad and prefer to keep your spending habits to yourself.

Spending money is easy; saving money takes discipline. The decade of your twenties is jam-packed with important decisions and saving money may not be on your list of priorities. Yet even though it is easy to procrastinate, saving money is one of the best decisions you'll ever make.

Money is a wonderful thing — when you have a lot of it. The average 25 - year - old, however, probably does not yet have a lot of money and therefore doesn't save a lot. But to make your money work for you — and it can — you need to be informed, diligent and proactive. What's the easiest way to ensure your money is putting in overtime? Place it into a savings account with a high interest rate.

Almost all savings accounts receive interest. This rate is typically less than one percent and not much higher than zero. It is compounded, which means you will receive interest on top of your interest, but because the rate is traditionally quite low (around 0.04%) the interest you do receive does not add up to much.

In fact, anyone is eligible for a high interest savings account and most of the time there is no minimum to set one up. In essence, a high interest savings account is like a chequing account, but the incentive is to keep your money in the bank rather than take it out.

Some people may recommend investing in GICs or other saving bonds instead of a high interest savings account. And while these are all good ways to save, your money is tied up anywhere from several months to several years. A high interest savings account, on the other hand, requires only a small notice of time prior to a withdrawal, usually 48 hours.

It may not seem like much, but in the long run, dedication to consistently saving, along with a high interest rate, will rear tremendous results. Let's say you have $3000 and you are determined to keep that money in savings for 20 years. At the end of that period, your bank savings account (at 0.04%, compounded annually) would grow to approximately $3,024 — or almost $25 in interest. Not really something to boast about.

If you placed the same amount in a high interest savings account with an interest rate of 3.0% (today's market), compounded annually, after 20 years you will have approximately $5,418. This is nearly double your initial investment and you didn't even have to lift a finger! Imagine what you can achieve with regular deposits into the account.

As a first goal, save three to six months living expenses. This way, you will be covered if you become seriously ill and can't work. Your bills won't wait until you're feeling better. The great thing about your money is you can choose what to do with it. So make it work for you. Your future will thank you