In the financial world, time is your best ally. The earlier you start saving, the more you can benefit from the magic of compound interest. This principle holds especially true when it comes to securing a solid financial footing for your children. A smart move dads can make is to open a high-yield savings account for their kids right from the moment they are born. In this post, we'll delve into why and how you should do this, and we'll also provide a handy table listing some of the best high yield savings accounts available.
The Magic of Compound Interest
Compound interest is often hailed as the eighth wonder of the world. It's the process where you earn interest on both your initial investment (the principal) and the interest that investment has already earned. Over a long period, say 10 to 20 years, the benefits can be astonishing.
Let's illustrate this with an example. Suppose Dad opens a high-yield savings account with a $1000 initial deposit when his child is born. If the account has an annual interest rate of 2%, by the time the child turns 20, the amount would have grown to $1,485, without adding any more money to the account. The interest earned is $485. Now, if Dad decides to deposit an additional $50 every month, the total amount after 20 years would soar to $17,908, with the interest earned being $5,908.
The Hows and Whys of High-Yield Savings Accounts
High-yield savings accounts offer considerably higher interest rates compared to traditional savings accounts. This is crucial as it allows your money to grow at a faster pace. Opening such an account for your child the moment they are born gives the money a longer time to grow, thanks to the power of compounding.
Here's how to go about it:
Research: Look for reputable banks or credit unions offering high-yield savings accounts. Compare the annual percentage yields (APY), fees, and minimum balance requirements.
Open an Account: Once you've chosen an institution, opening an account is usually a straightforward process. You'll need your ID, social security number, and some initial deposit.
Regular Deposits: Make it a habit to deposit a portion of your earnings into this account regularly to maximize the benefits of compounding.
Avoid Withdrawals: Let the money grow untouched for 10 to 20 years to reap the benefits of compounding to the fullest.
Here are some of my research:
- Best Savings Accounts for October 2023 - CNET Money
- Best High-Yield Savings Accounts of October 2023 | Money
- 6 best high-yield savings accounts
- Best High-Yield Savings Accounts of 2023
My top 3:
Best for: Access to your money
APY: 4.30%
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