Friday, November 29, 2013

And 720 Years Later...

I heard interviews with some financial experts. One was espousing the teaching of our children the power of compounding interest. If they have some savings, they'll be surprised in a little while that the money has grown. This person hasn't looked at their own bank statements recently, have they?

There is no more compounding interest because there isn't any interest. I was helping my twenty-something daughter review her finances. She asked about Certificates of Deposit (CD). Last year, she was dismayed that she had made a whopping 77 cents in interest for the year. So we reviewed the interest rates at her bank--a large national bank. For every $10,000 in account, she would earn $1 in the year. CD's were better but not great.

These days it hardly pays to keep money in the bank. Somebody wants us to save more, but it's not going to happen with the traditional methods. We need to be teaching kids about investments because it's doubtful we'll see bank account interest at any worthwhile levels.

The Rule of 72 says that your money will double in circumstances when the years times the interest rate equal (or exceed) 72. With an interest rate of 0.1%, it's going to take 720 years for any money to double at this rate. Our unborn kids will be beyond old and gray by that time.

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