In the grand scheme of things, putting your money in a savings account is probably the easiest and most common way people get their money to “work” for them. Unfortunately, more than likely, you’re money won’t be working too hard for you.
First off, what do I mean by having your money work for you? Essentially, having your money work for you means that you use the money you have to make additional money for you. In the case of a savings account, your money is working for you by earning a small amount of interest each month.
For example, if you have $1,000 in a bank account that yields (also known as “earns”) 2% annual interest, or .00167% per month, after the first month your balance will be $1,001.66.
However, thanks to the power of compounding interest, the next month you will earn the same percentage (.00167%) on both the original $1,000 and the earned $1.66. That means after the second month you will have 1,003.33.
I know this all doesn’t seem like much (and it’s not) but savings accounts are great places to start when you’re trying to build up your funds.
The nice thing about savings accounts is they are relatively easy to access and provide very little barrier between you and your own money.
Unfortunately, you pay for that by not earning as much as you would elsewhere. But, you’ve got to start saving somewhere, and a savings account is a great place to start.