How does interest rates work? My online savings account is with Washington Mutual and its at a rate of 4.65%. Ok so for example, for January it had $196.86 and my interest is .40 cents. Is this right? If I do the math, it comes out to be a tad above .2% interest.... or am I doing something wrong here? Is it 4.65% each month or is that what Ill have over a years time?
Think of it this way. At the end of 1 year you add up all your interest and it will equal to 4.65% of the amount you had in your account from the beginning. If you keep the same amount in the account for the whole year. 4.65 is the yearly amount of interest you will gain. If they gave you 4.65% each month that would work out to over 50% interest for the whole year. wish I could find an account like that.
It depends on how the interest is defined exactly... is it convertible monthly? quarterly? etc. Is it a compound interest, simple interest?
I'm looking into getting a savings account in a few months. What should I look for in one? Maybe I need to start my own thread.
FDIC insurance is the most important thing to look for. Interest rates from competing banks tend to have the same terms and rates. You can get better rates from money market mutual funds, but no FDIC insurance. Most money market mutual funds (from like Fidelity) though are very safe investments, since their customer base would do a mass exodus on the first sign of trouble.
your interest rate is probably accrued on your daily balance. however much you have in your account that day is what gains interest, not your balance at the end of the month.
I have never really understood FDIC insurance but I see the sign at every bank I go to, what is its purpose? Mutual funds? Don't you need like a few thousand to get into one of those?
That's why they have the SIPC, or Securities Investor Protection Corporation. And I'm sure a good amount of brokerages do this, but Fidelity purchases insurance for the dollar amount over $100,000 in your account. $100,000 is insured by the SIPC
it's purpose is to keep the masses from withdrawing all the money from the bank when they think there's a financial crisis. basically, it's saying that whatever money you have in the bank and the bank goes under, it's insured up to $100,000 by the government.
no, you dont need a couple of thousand to invest in mutual funds although it doesn't hurt. a mutual fund basically just takes a pool of investors and invests in a conglomeration of multiple investment vehicles bundled up as one fund. take for instance an emerging market mutual fund.... the fund manager would select specific stocks, bonds, etc. involved in emerging markets (china, SE asia, etc.). the manager takes all the money different people have invested in that fund and you earn money on the percentage of that fund you've contributed to. btw, i'm sure that's a pretty bastardized definition.
Mostly. The limits can go down for IRAs or when you setup a monthly transfer from your bank to the mutual fund.
