Ramses Delgado, Banking Moderator
@ramses_delgado1
Money grows in a savings account thanks to a concept called interest. Financial institutions pay you interest for keeping your money in their accounts. It's essentially a reward for allowing them to use your funds for loans and other investments.
The interest rate is a percentage of your savings balance that the bank pays you over a specific period (usually monthly or annually). So, a higher interest rate means you'll earn more money on your savings.
Then, many savings accounts offer compound interest. This means the interest you earn is added to your account balance, and then you also earn interest on that accumulated amount in future periods. This can significantly boost your earnings over time.
Here's an example. You deposit $1,000 in a savings account with a 1% annual interest rate (compounded monthly). After one year, you would earn $10 in interest (1% of $1,000). That interest would then be added to your balance, making it $1,010. In the second year, you'd earn interest on both the original $1,000 and the $10 you earned the first year, for a total of $10.10 (slightly more than $10 due to compounding).
You can check the best savings accounts available to make sure you choose one that fits your goals.
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