When talking of interest in financial terms, there are two types of interests we should be aware of. One is the interest we earn on our investments and the other is interest we incur on the loans we take.
First let us look at the delicious thought of earning interest.
By choosing the right instruments to invest our funds, like a bank account, or term deposits with banks or finance companies, we can maximise the interest we earn. Do not get carried away by the interest rate you are offered especially by finance companies 'coz the higher the interest rate you are offered, the higher the risk of losing your money. Again, do a long term planning of your future funds requirements, ‘coz if you are forced to break a term deposit, you might end up in loosing some of your capital. Most of the banks today offer accounts with comparatively higher interest rates when you operate them thru the internet or thru the phone. By using a combination of such high interest accounts and a day to day account, you can maximise the interest you earn by keeping your money as far as possible in your savings account.
NB: We are talking of interest here, not stocks & shares
Now the unpleasant thought of incurring interest
Like cholesterol, there is good interest & bad interest. By good interest I mean the interest you pay on your mortgage, car loans, hire purchases, etc. When you have paid off the loan on which you have been paying interest, you own the asset! You are able to budget for them as they are regular payments and you know when you will pay your loan off.
Obviously, bad interest refers to interest on loans you have taken to pay off your bills, meet unexpected expenses, credit card interests, overdrafts etc, The list is endless. You gain nothing when you have paid off such a loan. While conceding taking such loans sometimes is unavoidable, the effort should be to pay it as soon as possible, as much as you can so as to reduce the amount of interest you pay.
Remember, on any loan that you take, when you pay more than the minimum amount you are required to pay, you are paying off more of the loan faster, which in turn reduces the total interest you will be paying at the end of your loan term..
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