When money sits untouched in an account or on a credit card balance, chances are, it is accumulating interest over time. Interest refers to a percent of your original balance that is added to your sum, usually monthly or annually. It is important to keep yourself updated on the amount of interest being applied to your account, and how often it grows, or accrues.
There are two general ways to look at how interest affects you and your money. Either the interest grown is money you owe, or funds that your money has essentially earned. The following are ways you can expect interest to play a role in two common money practices:
Borrowing: When you make a purchase with a credit card, or apply to take out a loan, you are borrowing money with the promise of paying it back later. In these instances, interest is added to the total you will owe. Interest can be considered a cost or fee for borrowing money. Usually the longer a balance of debt goes unpaid, the more interest you will need to pay back in addition. Keep this additional cost in mind when deciding whether or not to deepen your debt.
Saving: Banks want to incentivize saving. Funds left untouched in a savings account usually earn interest over time. This means your balance will in fact grow, especially if you contribute regularly, according to your long-term savings goals. But you may also want to research if your account is earning the best rate possible, or if your bank can offer you better. In general, the more funds you set aside in your account, the more noticeable accrued amount will be!
You don’t have to look far to find a place where your money is earning interest. It is ideal, obviously, to have our funds grow larger, rather than be tied to an increasing pile of debt. Set yourself the goal of increasing your savings habits, and put borrowing habits on pause: You deserve financial stability now, and the benefits of gained interest in the future!
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