Compound Interest The Key To Retirement Planning

Compound Interest The Key To Retirement Planning

With looming threats of Social Security going belly up in the not too distant future, it is even more important for young people to have a good retirement plan. Congress, hoping to keep Social Security solvent a little further out in the future is contemplating a major overhaul of the system that has been with us since the days of President Franklin Delano Roosevelt. Already the age at which you can get full Social security benefits has moved up. It may hit 70 before too long. Employees and employers may have to pay more in to the system (taxes on higher earned income) as the government wrestles with the massive deficits of this very important safety net for the elderly and disabled. Preparing for the worst case scenario – no Social Security when you retire 30 or 40 years from today, is the prudent thing to do.

Don’t Put Off What You Can Do Today for Tomorrow

Many twenty something’s are too busy having fun and living their lives to even think about retirement planning. They’re young and carefree. They want to enjoy the best years of their lives. Who needs to worry about money? That’s the attitude many parents must fight when they warn their grown children to start retirement planning. Every financial adviser will tell you that the earlier you begin your retirement plan, the better the chance there is that your money will grow to a sufficient amount when it does come time to retire. The concept is called the power of compound interest. The more time an investment has to compound, the greater the potential return.

Setting Up a Plan

Most people are exposed to retirement planning through their job. The Human Resources manager will explain the retirement plan that the company offers. If you choose to join, a set amount of money will be taken out of your paycheck and invested in your retirement account. You can also have a secondary plan for retirement. You can invest in an individual retirement account (IRA) that you personally control. Whether you have a 401K plan at work or have an IRA in a personal account is not important. What matters is how much your money grows over time.

Time is of the Essence

The longer period of time you can leave an investment alone, the more likely it is to appreciate. That is a simple function of time on interest rates and the average rate of return. Not considering anything other than time, $ 100.00 today (present value) will be worth more in 10 years (future value). How much more depends on the average interest rate you earn over those 10 years. If you can earn an average of 15% each year for the 10 year period (that’s 15% x 10 years), you might think you’d get 150% or $ 150.00 for a total of $ 250.00. You’d be wrong, because you did not take in to account the power of compound interest.

Compound interest in its simplest terms is calculated each time period (usually daily) and then theoretically added to the original total investment. In the above example, assume interest is calculated once per year. After one year, your investment will have grown by 15% or $ 15.00, giving you a total of $ 115.00. The second year, you would receive 15% of $ 115.00 for a total of $ 17.25 which is then added to make a new total of $ 132.25. The process continues throughout the life of the investment. By the end of 10 years, your investment will have doubled and redoubled making the original $ 100.00 now worth a bit over $ 400.00. You can see the power of time on compound interest.

Power of 72

The Power of 72 is a basic math concept that says an investment will double in the time period you get by dividing the average rate of return in to 72. In our above example, 15 goes into 70 between 4 and 5 times. Therefore, your money will double in just under 5 years and then double again close to 10 years (broad estimate).

Conclusion

The younger you start retirement planning, the more years your money will have to take advantage of the powerful concept of compound interest. If you are 50, you might have only 15 years before retirement. If you are 20, you have a good 45 years before retirement. In 15 years your money might double and redouble. In 45 years, the same investment and interest rate will double 6 times. Do the math. Take advantage of compound interest.

Charly Dimatoni writes out of Chicago about different personal finance tips, including retirement planning. Always looking for the most favorable investing options, she tends to end up planning her finances at http://www.firstrade.com/content/en-us/retirement/overview more often than not.

Bank Interest Rates ? Factors Affecting Bank Interest Rates

Bank Interest Rates ? Factors Affecting Bank Interest Rates

Bank interest rates in the United States

The interest rates that banks offer fluctuate depending on the situation of the nation’s economy. The economy of the United States has not been doing very well in the recent past, to say the least. This has resulted in the federal government slashing interest rates. From 4.5%, the interest rate is down to 4.25%. According to banking experts, the interest rates will remain low until 2013, when the economy is expected to recover. Further, different banks in the United States offer different rates of interests to customers. By comparing the rates of different banks and studying all the underlying terms and conditions, you can make the most of the banking system despite the lowering interest.

How economy influences rate of interest

In the constantly fluctuating economy, if you want to make the most of your savings, then you need to put your money in the bank at the right time. You can only understand the optimum time for investment by studying the factors that influence the interest rates. There are numerous factors that pull the strings of bank interest rates. One of the major factors is, of course, the economy of the United States. When the bank is doing well and is in a position to pay high returns, the rate of interest will be high. Banks first focus on sustenance. Whatever excess they are left with is distributed in the form of interest rates. For the banks to do well, the economy has to be strong and so, invest your money when the economy of United States is on an upward swing.

Demand for loans

Banks make money through interests that they receive from loans and mortgages that they provide to people.

So, when there are a large number of people demanding more loans, it implies that banks receive higher incomes and hence, the rate of interest will be high. Again, the economy of the country comes into play. When the economy is strong, people can spend more and be able to pay interests for the loans that they receive. Further, banks provide loans only after ensuring that the borrower is capable of paying it back. The incomes of people of the US are steady and their jobs are guaranteed when economy is doing good.

Inflation effects rate of interest

Pressure of inflation on the nation severely affects the rate of interest. Inflation refers to the condition when the rates of all goods and commodities in the country escalate. So, potential borrowers put their plans for taking a loan on the back burner. They prefer for the economy to recover and inflation to dip so that their standard of living can increase and they can afford to take loans. Having to shell out huge amounts for basic commodities such as food and gas implies a fall in interest rates. Owing to inflation the rate of interest decreases for those who invest their money, the rate increases for those who take loans. Understanding the various factors that effect the rate of interest will help you choose the right time to invest and have some good security for your retirement.

 

Looking for best bank interest? Then you are just one step away, just visit the link and also know about compound interest.

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Bank Interest Rates ? Factors Affecting Bank Interest Rates

Best Deposit Interest Rates

by National Library of Ireland on The Commons

Best Deposit Interest Rates

The best deposit interest rates are at 10% for two different types of accounts and financial institutions. But like most investments there are restrictions.

Shore Bank offers 10.00% APY on their grand slam checking account with balances from $ 0.01 to $ 1000. The big catch here is you must live in an eligible county in either Maryland or Virginia.

Affinity Bank also has an account that has a 10.00% APY on a savings account for minors. The restrictions here are that you must a California resident and the balance must be under $ 500.

Patelco Credit Union has a savings account that has an 8.00% APY for its members that live in the San Francisco area and are under the age of 21. This rate is only good for a balance of $ 1000 or less. This credit union also has a 1 year CD for new members in the San Francisco area which has a 7.00% APY but is only for $ 1000.

Montgomery Bank offers 7.01% APY on their kids club savings account for children under the age of 12 and is only good for the first $ 500.

Boeing Employee Credit Union offers a savings with member’s advantage and early savers accounts for balances up to $ 500 that has an APY of 6.17%. This is available for all residents and students in the state of Washington as well as former and present employees of Boeing Aircraft Corporation.

There is Alliance Bank with their Freedom Checking rewards checking account that has an APY of 5.00% with restrictions. The restrictions include that there must be one ATM transaction per month, use internet banking, receive their statement online and make 10 debit card transactions per cycle.

There are great deals out there if you are lucky enough to live in the right place.

The best deposit interest rates give a great return but watch out for the restrictions.

If you don’t meet the qualifications for these bank account, check out this site for the best CD rates. If you are specifically looking for more information concerning best deposit interest rates, check out that article for deals available nationwide.

Home loans at lower-than-market interest rates

by Deseronto Archives

Home loans at lower-than-market interest rates

Leading group-buying real estate portal Groffr.com has tied up with private sector banks to offer bulk consumers home loans that are 0.25-0.75% cheaper than prevailing interest rates.

“We have tied up with ICICI Bank and Indiabulls Home Loans, and a couple of Building Societies Associations (BSA) who generate bulk volume for banks. Negotiations are also on for IDBI Bank and Axis Bank. We are confident these two banks will give us mandate to generate bulk volume at rates that are a little cheaper than prevailing interest rates,” said Sandeep Reddy, Co-founder of Groffr.com.

The process is simple. Customers wanting to buy houses in metros or tier-II, III and IV cities have to log on to this website and submit their interest. Within 7-10 days, the company generates a large number of customers, which it uses to negotiate better interest rates and other terms with the banks.

Interestingly, within a fortnight of the launch, the company has registered over 500 interested customers.

Groffr.com also plans to a sign similar deal with India’s largest public sector bank the State Bank of India (SBI).

“We approached SBI earlier. But their response was unfavourable due to teaser home loan interest rates. Since teaser rates manage to attract large customers directly, the bank did not want any intermediaries like us. But, the teaser rate arena is over now. Hence, we will approach SBI once again for considering our proposal,” said Reddy.

The company is currently in talks with a few venture capital players to raise funds for expanding the firm’s operations. According to Vikhyat Srivastava, another Co-founder of the portal, a number of venture capital firms have evinced interest and, at present, a few investors of “Mumbai Angels” are in advanced talks with the company, he added.

The company plans to raise Rs 2-3 crore from venture capital investors.

The concept

All a buyer has to do is find a deal on the website he is interested in and get himself registered as an interested party in that deal.

The property bears two prices: the market price and the discounted price Groffr.com offers, called the ‘Groffr Price’. The required number of group members and the last date for registering are also mentioned. Also, the buyers can suggest a deal in the ‘Start Your Group’ section, in which after starting a deal of their own choice, they can combine like-minded people to form a group. On forming a group, Groffr.com’s team steps in and negotiates the best deal with the developers on buyers’ behalf.

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Home loans at lower-than-market interest rates