[BLOG] Saving: The Long and the Short of It
The habit of saving is long term but the tactic is short. What I mean is the habit of saving money is a long-term, life-long habit. However, saving money into a bank savings account is a short-term tactic.
Your money should never be left sit in a savings account more than 6-12 months because the interest rate given by the bank is unlikely to ever beat inflation.
The type of savings option you choose depends on the goal of your savings strategy. It's essential to know what you're saving the money for so as to determine when you need to get access to the money saved. It may be appropriate to have a few different kinds of savings accounts as you may be saving for emergencies, college, a new home or for retirement.
The financial need/goal is different in each case so the vehicle through which you save and the amount saved is determined by the final need/goal. In this case, give each financial goal a dollar amount and time frame.
It's vital to understand that banks can quote interest rates that compound daily, weekly, monthly, quarterly, or yearly. When comparing one bank savings account with another, make sure you ask your bank for the Annual Percentage Yield (APY) figure in addition to the interest rates.
Over a 12 month period, an interest rate that compounds yearly could yield less money than a lower interest rate that compounds daily. Banks typically quote both interest rates and APYs, but only APYs give a true representation of the yield as the APY is calculated the same everywhere.
No matter what savings option you choose it's a good idea to make the saving automatic. Set up a Standing Order in your Checking (Current) Account for say the 1st day of every month and transfer the amount automatically to your savings account.
In summary, it's ok to automatically save money into a demand or notice period savings account but if I were you I'd be investing it elsewhere double-quick...within at least 6 to 12 months of it being there.
Isaac Twumasi-Quantus
Webmaster, Editor Africa Business Communities in Ghana.
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