Interest

I realized I hadn't mentioned interest. Working for you or against you interest makes a big difference in today's finance. Creditors use interest rates to charge you money for your credited money and savings accounts work the opposite direction paying you interest on the money you are "lending".

Interest is simple or complicated depending on how you look at it and the number of times it is compounded per year also changes things quite a bit. There are formulas for calculating interest in its many forms the most simple is that Interest = Principal x interest rate x time. Lets say you get "about 5% APR" on a money market account, we could get an idea of your interest in a year simply by multiplying what you have in the bank by .05 and we have an estimate of what you would make in a year. So in this example we would get the interest 1 time at the end of a year, usually this is not used in today's market. Usually accounts award the interest on a more frequent basis, this is called compounding.

I won't go over the math for this but just say that the more often the money is compounding the more interest will be made this is because the interest itself will be making interest. When you are investigating any interest account either as credit or savings you should be able to get an idea for how often the account compounds and often you will see an APY (annual percentage yield) in addition to the APR (annual percentage rate) the APY gives a slightly different rate and should be higher because it contains the compounding adjustments for a years time using this rate you can perform the simple multiplication described above.

Remember with interest you want it to work for you lower rates on credit and higher rates on savings. Examples of different rates would be for loans a credit card would be above 10% many times well above but a secured loan I took out was less than 8%. For savings you might find rates at 2% for some CDs, higher or lower depending on how much you are putting into it, or the amount of time you are putting it in for. Remember the more money or the more time something is subject to an interest rate the interest will grow. Also, APY is going to give you a quick idea about how much you are going to make with your savings.