Youth may have its own advantages when it comes to money, but it's really never too late to save money because of the benefits of compounding interest. Here's how it works:
Let's say you deposited $1,000 in a 12-month CD, and your balance is $1,010 at maturity. Then, instead of withdrawing the $10 in interest earnings, you renew your CD for another 12 months under the same terms. Now you'll earn interest on your initial deposit plus the interest you've already earned. This is an example of compounding interest, and it is an excellent way to start saving money for the future.
That $10 may not seem like a lot of money, but keeping it in the CD helps you earn more interest, and if you continue the same renewal cycle without making withdrawals over a period of years, your balance grows even faster — and you don't have to do anything but watch it grow. That, in a nutshell, is how compound interest works: with time and consistent saving, you can accumulate a nest egg no matter how old you are, and no matter when you start.
When it comes to making your money work hard, there's simply no substitute for plenty of time and a well-designed plan. Consider talking with a professional financial planner about your needs and financial goals, which should provide the foundation for your plans.
Before you start saving toward other goals, however, consider setting aside a portion of your money for an emergency fund, with roughly three to six months' living expenses in a safe place like an Ally Bank No Penalty CD, Money Market Account or Online Savings Account — all of which offer competitive interest rates.
You're never too young — or too old — to start an emergency fund because it may help you tackle unexpected expenses without creating high interest debt problems, and it provides that priceless peace of mind that comes with knowing you've got a plan.
Ally Bank makes it easy to save and manage your accounts, and you can compare our interest rates against the interest rates of our competitors — all at Allybank.com or give us a call by phone 877-247-ALLY (2559) anytime. Help is available 24/7.