Many of us aim to get the highest possible return or interest on our invested money. Depending on how long you save time and how much risk you are willing to take, it can be easy, or difficult, to achieve that goal. But no matter how short or long-term you plan to save, there is something you can use that will help your money grow.
Invest money with good interest rates – short term
Investing money with good interest rates in the short term is a real challenge. Placing your money in a savings account is, as you may already know, no good idea if you want to get a high return and investing in shares is often risky if you save in the short term. The most common is that you instead choose to invest in fixed income funds or in a so-called fixed rate account. With a fixed interest account, you get a fixed, annual savings rate that is usually higher than in a regular savings account. In today’s situation, fixed-rate accounts are also not something that gives a high return, but if you are looking for low risk and want to be able to access the money within a relatively short period of time, a fixed-interest account is still a better alternative than leaving the money in the bank account.
If you leave the money in the account for a few years, you can also take advantage of the interest-on-interest effect.
Since the interest rate gives you more money in the account than you initially had, after year 1, you get not only interest on your initial investment but also on the return in the form of interest that you received in year 1. An example: if you deposit 500 USD in a savings account with a 10% interest rate (for simplicity’s sake) you will have USD 550 after one year, which you will again receive 10% interest the following year which gives you USD 605 and so on. This is the interest-on-interest effect.
If you save in the longer term, you have the opportunity to take greater risks, which gives you more options when choosing where to put your money. For example, what gives you the best conditions for getting a good interest rate or high return depends on, for example, how much risk you are willing to take. Something that may be worth thinking about in whatever savings form is that the longer your savings are, the more you will earn from the so-called interest-on-interest effect.
If you choose to invest your money in, for example, shares or funds, you can utilize the interest-on-interest effect in the same way as with a savings account, leaving the return you receive on the stock or fund as it rises in value in your saving. As an example, we can say that you have bought fund shares for USD 5,000 in total for one year. At the end of year 1, the fund has given you 10% in return, ie USD 500. If the fund continues to provide the same percentage return during year 2, you will, in addition to receiving a 10% return on your new investments in the fund during the year, will also receive a 10% return on your USD 500 that you received in return in year 1. Over time, therefore, The interest-on-interest effect, like the snowball effect, makes your money grow exponentially.
If you invest money in shares or funds, it is good to be vigilant about any fees, such as management fees, which can risk eating up part of your return and reducing the interest-on-interest effect.
Invest your money with Sydney Carton – take advantage of the interest-on-interest effect
A good alternative is to invest your money with Sydney Carton. Then you lend money to creditworthy individuals through our digital platform. With a low risk and high return, you can choose to maximize your return by utilizing the interest-on-interest effect. You do this by reinvesting your monthly payments into new loans and allowing your money to grow further over time. When you want to get access to the money, you simply choose to stop reinvesting and can withdraw it continuously.