Topic Summary
People save money to afford things in the future, such as a car, a house, or even a new pair of running shoes. Others create an emergency fund to cover unexpected expenses for 3+ months.
Why Save in a Savings Account?
Money is kept safe and earns interest—this interest is the reward for saving. Savings accounts differ in type, including:
- ISAs (Individual Savings Accounts): Offer tax-free interest on savings up to £20,000.
- Fixed Rate Accounts: Lock away money for a set period in return for a higher interest rate.
- Easy Access Accounts: Allow easy withdrawals.
- Regular Saver Accounts: Require a fixed amount to be saved each month.
- Green Savings Accounts: Fund environmentally friendly projects.
Pensions are also a way of saving for retirement, often with tax benefits.
Compound Interest: Interest calculated on the initial principal and the accumulated interest, making it a powerful tool for growing savings.
Question
Which of these is not a feature of a savings account?
Discussion
Why is compound interest often referred to as “magic”?
How it works in real life
Imagine you deposit £1,000 in an account with a 2% annual interest rate. Calculate how much your £1,000 would be worth in 10 years using compound interest.