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Interest can either work for you or against you when it comes to your money and many people do not understand how it works fully or haven't really considered how much it can affect their bank account. This article will give an example of how interest can work for you or work against you and hopefully give some people a better understanding of how it is affecting their current financial situation.
When searching for a high interest bank account make sure the account has low account keeping fees, low transaction fees, and other fees. You do not want the fees to eat into any interest that you have earned, and if you are not earning that much interest in your bank account yet then it is even more important that you are aware of the all the fees. Bank fees are not so important when you have millions of dollars stored in your bank account unless the fees are percentage based which means they could be taking a large chunk of any interest you earn, it is better to find a fixed fee account. Make sure you read the banks product information (bank account information) before you sign up many people overlook this and only focus on the positives of the account without even noticing the negatives of the account which could hurt your money in the long run.
So once you have found a good account with low fees and start earning a nice interest here is the important part; if you have any loans that have interest on them DO NOT keep your money in your high interest account, you are not actually gaining anything, the money you earn in interest is actually paying off the extra interest you have on your personal loan or mortgage loan (the usual types of loans people have). Here we will explain why.
Say you have a car loan of $10,000 at an interest rate of 10% (approximate average rate of a personal loan), this means you are paying about $84 a month in interest to begin with, that means you actually owe about $10, 084 at the end of first month, if you do not pay anything during the month. You also have a high interest savings account with a 6.5% interest rate with $10,000 in there, at the end of the first month you would have earned about $53 in interest. However you have lost $84 to interest from your loan so your actually overall gain is negative $53 - $84 = -$31. Now if you had put $2,000 from your bank account into the loan account around the start of the loan here's what your overall gain would be at the end of the first month: The loan ($8000 at 10% for a month) = $66 interest, the account: ($8000 at 6.5% for a month) = $43 interest, so your overall gain would be $43 - $66 = -$23, now this is better than being -$31 down.
The point is that there is not much point in gaining any interest on your money in your savings account if you have a loan that is loosing you money with interest, it is better to pay of the loan as soon as possible.
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