Two classes of savers make mistakes: (1) the saver who hoards his savings in hiding places and gets no interest, or who does not get savings bank interest on bank deposits; and (2) the savings bank saver with $1,000 or more who does not invest his funds in bonds or high class securities and thus secure 4½, 5, 5½, 6 or even 7% interest.
Interest rates are like wages; your money should earn the best wage for you that is possible; but, unlike wages, there is a limit to what you should expect to earn safely. Savings banks pay from 3 to 4½% interest--4½% saving bank interest is not universally available with safety, but is today by no means uncommon. Any savings bank operating under a state charter is safe. Beware of “private” banks; many of them are not sound.
Government bonds are better than savings bonds--they will yield from 4 to 5½%.
At 6% the high class mortgage bonds and preferred stocks come into view, and are as a rule entirely safe. You should have no reason to regret trying to get 6% for your money, if you are intelligent in your choice.
Above 6% there are more chances. There are entirely sound purchases of high class preferred stocks to be made that will yield as much as 8%; but the ordinary saver should not trust himself to pick them. They require special knowledge and analysis, to avoid making serious errors. At certain depression periods sound preferred stocks that are quite remarkable bargains may be found, under competent guidance; listed stocks of successful companies whose earning record is good and whose yield at depression prices may be as high as 10% in rarer instances. Such stocks are the only true financial “bonanzas,” and may be shared by the medium sized investor and saver as well as the wealthy man.
Some of the foreign securities now offered are quite safe at 8 and even 8½% yield; and others absolutely safe at 7½%. Interest yields have had to rise in recent years; and particularly for foreign loans.
The investor and saver with less than $5,000 capital should entirely content himself with 4½ to 6%; the man with $10,000 with 6 to 7%, and the man with $20,000 or more may hope to have one-fifth of his savings earn 8% with safety. All this is based however on conservative, skilled counsel, which a good banker or investment house will gladly provide at no charge other than the usual moderate commission on sales.
Greed for high interest rates has lost more money to savers than has ever been made by taking the risks involved.
The subject of how your savings will increase if you let them accumulate at interest is particularly interesting. There are many cases on record of people who have dropped out of sight, leaving a few hundred dollars on deposit in a savings account, and who found on their reappearance years later that the modest account, through the compounding of its interest, has grown to one of substantial proportions. The interest continued to be credited quarterly or semi-annually, and as it was added it also drew interest. In other words the interest was compounded at regular intervals. Money invested at 6%, and the interest allowed to stand, will double in about 12 years.
The tables on the next two pages are printed to show how money accumulates merely by being left at interest.
$100
Year 3% 4% 6% 1 $103.02 $104.04 $106.09 2 106.14 108.24 112.55 3 109.34 112.62 119.41 4 112.65 117.17 126.68 5 116.05 121.90 134.39 6 119.56 126.82 142.58 7 123.17 131.95 151.26 8 126.90 137.28 160.47 9 130.73 142.83 170.24 10 134.68 148.60 180.61 11 138.75 154.60 191.61 12 142.94 160.84 203.28 13 147.26 167.34 215.66 14 151.72 174.10 228.79 15 156.30 181.14 242.73 16 161.03 188.45 257.51 17 165.89 196.07 273.19 18 170.90 203.99 289.83 19 176.07 212.23 307.48 20 181.39 220.80 326.20 21 186.87 229.72 346.07 22 192.52 239.01 367.15 23 198.34 248.66 389.50 24 204.33 258.71 413.23 25 210.51 269.16 438.39 26 216.87 280.03 465.09 27 223.42 291.35 493.41 28 230.18 303.12 523.46 29 237.13 315.36 555.34 30 244.30 328.10 589.16
$500
Year 3% 4% 6% 1 $515.11 $520.20 $530.45 2 530.68 541.22 562.76 3 546.72 563.08 597.03 4 563.24 585.83 633.39 5 580.27 609.50 671.95 6 597.80 634.12 712.88 7 615.87 659.74 756.30 8 634.48 686.40 802.36 9 653.65 714.13 851.22 10 673.41 742.98 903.06 11 693.76 772.99 958.05 12 714.72 804.22 1,016.40 13 736.32 836.71 1,078.30 14 758.58 870.51 1,143.97 15 781.51 905.68 1,213.63 16 805.13 942.27 1,287.54 17 829.46 980.34 1,365.96 18 854.52 1,019.95 1,449.14 19 880.35 1,061.15 1,537.39 20 906.96 1,104.02 1,631.02 21 934.37 1,148.62 1,730.35 22 962.61 1,195.03 1,835.73 23 991.70 1,243.31 1,947.52 24 1,021.67 1,293.54 2,066.13 25 1,052.54 1,345.80 2,191.96 26 1,084.35 1,400.17 2,325.45 27 1,117.12 1,456.73 2,467.06 28 1,150.88 1,515.59 2,617.31 29 1,185.66 1,576.81 2,776.70 30 1,221.50 1,640.52 2,945.80