Why Your Interest Rate is so Important
How hard should you work to get a slightly better interest rate on your investment? Should I really spend a lot of time research investments to boost my rates a few percent?
This chart assumes that you start working at age 18, that you put away 10% of your income a year and that your salary grows at 6% a year. It then shows the impact of different interest rates.
If you look at the right side of the chart you see the dramatic result. As time goes on minor differences in your rate of return make major difference in your net worth. At 70 years old the investor that landed lifelong returns of 4% has 976 thousand dollars. While this is much better than your average investor it is far less than the 1.5 million dollars earned by the investor with a 6% rate, the 2.6 million of the investor that worked hard to achieve a 8% interest rate and it is pocket change to the investor that managed to set aside 8.9 million dollars.
Even at age 35 the 6% investor beats the 4% investor by 17%.
The interest rate you achieve with your investments has a huge impact on the amount of money you have to achieve your goals. Look for ways to increase your return like reducing mutual fund fees, finding better money market and CD rates and finding good interest checking accounts. Be careful to move your money between accounts to maximize your overall return.
Good luck!