Top Floor

One of the more basic terms that you should understand when it comes to your money and banking is APY, as it is a significant term in understanding how your money grows. In this blog, you’ll find a quick overview of this term. Read on!

In a nutshell:

APY= Annual Percentage Yield.
Annual percentage yield is the number that tells you how much you’ll earn with compound interest over the course of one year.

A higher APY is generally better when you’re looking at accounts for your savings. When you’re the one paying interest, a lower APY is usually best.

You will notice that interest is always paid out as a percentage.
Why is this you ask? It’s because it’s a percentage of your account balance.

Let’s do a quick and easy example:

Let’s pretend Susan has a savings account that offers 3% interest.  She keeps $100 in this saving account. 3% of $100 is $3, which is the amount added to her balance in the form of interest. At the end of the year, Susan would have $103 in her account. (Yes, this is pretty much free money for Susan and can add up over time.)

However, interest doesn’t usually get paid out just once a year (usually the compounding frequency is monthly), which means Susan is earning interest on her collected interest. Unfortunately, Susan won’t receive 3% each month, so there is a calculation that goes along with this (sigh…math). In order to figure out how much interest she would earn each month, she would use the below calculation.

APY = (1 + r/n) n – 1

r= the stated annual interest rate
n= the number of compounding periods each year (generally if it’s monthly, this will be 12)

If compounded monthly, Susan would have earned $3.04 at the end of the year on her original $100.00 making a total of $103.04. Seems small, but that number can add up over time.

Learn more about banking basics in our Financial Education Center here!

Open a checking account with Bank Five Nine here

In today’s financial world, things are always changing. How much do you know about the products and services offered by your bank, including certificates of deposit, loans and accounts? Here is a quick quiz to test your knowledge 

How Much Do You Know about CDs,  Bank Accounts, Loans and More?  Take the quiz below to find out!

Question #1: Certificates of deposit with longer maturities usually provide higher interest rates than those with shorter maturities.

a. True
b. False

Question #2:  Why is the Federal Reserve’s interest rate policy important?

a. The Fed dictates what interest rates banks pay on savings accounts and CDs.
b. The Fed sets interest rates to make the stock market go up or down.
c. The Fed tries to keep inflation under control and “influence” the economy by setting the interest rates banks pay and receive for overnight borrowing.

Question #3: Which of the following is a benefit of an automatic savings plan?

a. Convenience
b. Helps control spending by moving funds automatically into a savings account
c. Develops a good savings habit
d. All of the above

Question #4: Interest on U. S. Savings Bonds continues forever.

a. True
b. False

Question #5: What does the “the rule of 72” mean?

a. Years that end in 7 or 2 have usually produced high investment returns.
b. An amount of money roughly doubles when the interest rate and the time period equals 72.

Question #6: Mortgage payments are made up of interest and principal repayment. Which of the following is true?

a. The mix of interest and principal repayment remains the same over the life of the mortgage.
b. In the early years of a mortgage, most of the payment is interest.
c. You pay all the interest first, then pay off the principal.
d. In the early years of a mortgage, most of the payment is principal.

Click here to see all the answers!

Question #1: Certificates of deposit with longer maturities usually provide higher interest rates than those with shorter maturities.

a. True
b. False

The financial IQ answer is a.
Usually institutions are willing to pay higher interest rates if you are willing to commit to leaving your money on deposit for longer periods. If you prepared a graph and plotted interest rates on the vertical axis and time periods along the horizontal axis, you would have what is sometimes called a “yield curve.”
 

Question #2:  Why is the Federal Reserve’s interest rate policy important?

a. The Fed dictates what interest rates banks pay on savings accounts and CDs.
b. The Fed sets interest rates to make the stock market go up or down.
c. The Fed tries to keep inflation under control and “influence” the economy by setting the interest rates banks pay and receive for overnight borrowing.

The financial IQ answer is c.
The stated over-riding objective of the Federal Reserve Board of Governors is to keep inflation in check. Their “overnight borrowing rate” strongly influences overall interest rates and the economy. Many institutions use this rate to make “prime rate” decisions that affect consumer borrowing on everything from credit cards to mortgages.
 

Question #3: Which of the following is a benefit of an automatic savings plan?

a. Convenience
b. Helps control spending by moving funds automatically into a savings account
c. Develops a good savings habit
d. All of the above

The financial IQ answer is d.
Automatic savings plans can be the easiest way to save. By having funds either taken from your paycheck or automatically transferred from your checking account into a savings account, you accumulate funds over time, put your money to work faster and develop a valuable fiscal habit of saving.
 

Question #4: Interest in U. S. Savings Bonds continues forever.

a. True
b. False

The financial IQ answer is b.

• U. S. Savings Bonds have been popular way to save for over 60 years. However, some types of bonds stop paying interest after a period of years. The following bonds are no longer paying interest as of November 8, 2010:
• Series EE Bonds – Issued January 1980 through November 1980.
• Series HH Bonds – Issued from January 1980 through November 1990.
• Savings Notes – All issues.
• Series A, B, C, D, E, F, G, H, J and K – All issues.

If you have one of these bonds, you should cash them in and put your money back to work.
 

Question #5: What does “the rule of 72” mean?

a. Years that end in 7 or 2 have usually produced high investment returns.
b. An amount of money roughly doubles when the interest rate and the time period equals 72.

The financial IQ answer is b.
The “Rule of 72” is a good estimation technique to understand how funds grow with compound interest. Money doubles when the earnings rate times the number of years equals 72. For example, money doubles in 10 years when it earns 7.2 percent and in 7.2 years if it earns 10 percent.

Question #6: Mortgage payments are made up of interest and principal repayment. Which of the following is true?

a. The mix of interest and principal repayment remains the same over the life of the mortgage.
b. In the early years of a mortgage, most of the payment is interest.
c. You pay all the interest first, then pay off the principal.
d. In the early years of a mortgage, most of the payment is principal.

The financial IQ answer is b. 

The great majority of mortgage payments in the early years is comprised of interest. It is in the later years when more and more of your payments are used to pay down the mortgage.

Want to keep learning? Visit our Financial Education Center!
Our Financial Education Center is designed to help answer questions and provide you with the tools you need to make informed decisions when it comes to your banking and your future. Please peruse our financial IQ basics and product demos to get a better sense of how the financial world works for you.

Credit scores play an important role in creating your financial profile, and in securing your ability to get loans at favorable rates. Here are some tips to help you understand and manage your score:

1. Get a copy of your credit report, and make sure the information in it is correct. Under federal law, you can get a free credit report every 12 months. You can do this 3 ways: by going to www.freecreditreport.com, by calling 877-322-8228, or by completing the Annual Credit Report Request Form (PDF) and mailing it to Annual Credit Report Services, P.O Box 105281, Atlanta, GA 30348-5281.
   • Tip: If you chose to call-in for your report, be prepared to wait 2-3 weeks to receive it. The other option may be faster.
2. Work to achieve a credit rating of 700 or higher. Most credit scores, according to Experian, fall between 600-750. Aspiring to 700 or higher will motivate you to do the things that impact your financial health and help you enjoy lower loan rate opportunities.
3. What are those “things”? First and foremost, pay your bills on or before their due date. Setting up auto pay can help, but keep an eye on your balance so you don’t overdraw your account.

Also, take stock of how leveraged you are. If your debt is close to your credit limit, that will impact your credit score.

Be prudent about applying for new cards. Applying for too many cards in a short timeframe could trigger a negative action on your score.

And finally, look at the type of debt you have; a little on each mortgage, credit card and installment loans is preferable to having all your debt concentrated in one area or through one source.

Everyone has dreams, and some of you may even have long-term goals mapped out. Whether your dreams involve a new house, an early retirement, or just living debt-free, having sufficient financial resources plays a key role in achieving these goals. 

So, why is it that so many of us don’t have a financial plan? Maybe it’s because we don’t feel like we have enough money to even justify one. Or, maybe we put it off because we don’t know how or where to begin the process. Whatever the reasons, before completely dismissing the idea of developing one, consider the following three things a solid financial plan can do for you.

 1. Financial Strategy

If for no other reason, give yourself a good night’s sleep. A solid financial plan will help provide you the confidence you need to sleep well and worry less. It puts you in control of your finances and helps to ease your mind when short-term financial issues arise, such as a dip in the stock market. Because a solid plan is long-term, those hiccups will seem less like a tornado, and more like a rainstorm.

 2. Better Decision-Making

Writing down your goals, and the steps you’re going to take to get there, will help you make better financial decisions simply because you’ll be more aware of the things you do on a daily basis that affect your finances. For example, let’s say part of your plan is to pay an extra $200 per month for one year to achieve the goal of eliminating a high-interest credit card debt. Because you have a plan, you also know you’re currently spending $400 per month eating take-out. It isn’t hard to deduce that by eating at home a few extra nights per month, you can accomplish one of your goals with little effect on your day-to-day life. No matter how big or small your goals, it’s always easier to make better decisions when you have all the information.

 3. Staying on Track

We all get off track now and then, but getting back on track and staying there is much easier if you can simply make a small adjustment on your road map and keep on going. In addition, the times you encounter bumps in the road may very well be the best time to reevaluate your plan, and reconfirm that you’re still headed in the right direction.

 The best financial plans are written out and specific. If you aren’t comfortable doing it yourself, consider turning to an expert to help you develop a plan that covers every aspect of your financial life. We turn to experts for our body’s health, why not turn to them for our financial health if we can. Not only can they provide expert advice on everything from insurance and daily spending, to retirement and estate planning, they take an objective and unemotional look at your situation and apply solutions that fit your own unique circumstances.

So, if you don’t have a financial plan, consider getting started today. There is so much to gain, and so little to lose by doing so. 
 

Click here to learn more!