Has anyone ever told you that your** savings account is losing money** even though you are getting interest.Â The reason is **inflation**.Â Inflation is the rate at which the level of prices for goods and services is rising, and purchasing power is falling.Â This means as inflation rises, the price of goods and services rises.Â Have you noticed the price of gas is higher than it was 10 years ago?Â I remember gas being $1 a gallon.Â That price increase is due to inflation.Â Inflation occurs when the value of money falls, decreasing purchasing power.Â Â As inflation rises, every dollar that you have will buy you less.Â For example, a candy bar that cost $1 a year ago would cost $1.03 right now with an inflation rate of 3%.…

# Interest Rates

## What Is So Great About The Prime Rate

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Have you ever heard of the Wall Street Journal Prime Rate? Do you know what it is? Are you affected at all by changes in the prime rate? The prime rate is a very important number for anyone that has certain types of loans. If the prime rate increases, then your rate increases. The same happens if the prime rate decreases. It’s important to understand at least the basics of the prime rate, as well as what can cause it to change.

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**What is the Prime Rate**

The prime rate is a bank lending rate that is used as the index rate for different types of consumer debt.…

## The Bank Robbed My CD

OK, the bank didnâ€™t really rob me.Â This is, however, how a lot of people feel these days.Â Have you looked at the rates that banks are offering on certificates of deposits?Â They are almost not even worth the gas it takes to drive to the bank.Â There are really only a few cases where CDâ€™s should be used.

**The Numbers**

Lets take a look at what CDâ€™s are offering.Â The national average 12-month CD rate is .31% APY.Â Thatâ€™s right, thirty-one hundredths of a percent.Â That equates to $31 for the year with $10,000 invested.Â Here is a quick chart of the national average CD rates.…

## Compunding Interest, The Good And The Bad

**Interest on your Savings or CD **

**The Good**

**APR**â€“ The APR is the actual rate that will be applied to your money.Â This rate is for the entire year, not just per month or day.Â That is important in understanding how much interest you will get.Â An example would be if you have $10,000 and put it in a savings account offering .50% APR you would receive $50 for the year.Â In order to calculate this, you would enter into a calculator $10,000 X .005% = $50.Â Make sure you are not entering .5%, because that is 50%.Â

**APY**â€“ The APY is used when the interest rate or APR is compounded on a quarterly, monthly or daily basis.Â The APY takes making interest on interest, therefore will represent a higher interest rate than the APR will be.Â For example, earlier I showed how to calculate the interest you will make for the year.Â That only works if the rate is compounded on an annual basis.Â Most banks calculate on a monthly or daily rate.Â In order to calculate this, you must find the rate of interest that is calculated for your compounding schedule.Â Letâ€™s use a monthly compounding schedule, and use the same .50% interest rate.Â To get the monthly APR, divide .50% by 12.Â Remember to put it in the calculator as .005% / 12 which gives us .0004166%.Â That is our monthly interest rate.Â Multiply that number by the amount that is in your savings or CD.Â $10,000 X .0004166% = $4.17.Â That is how much you will make in a month.Â Now the next month you would include the previous monthâ€™s interest in with your principal balance, and would earn interest on that interest.Â This is called compounding interest, and can really help when you save a lot of month.Â