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Your money can work too
Hughes Federal Credit Union pays you money for keeping the money you save or deposit into your savings account. The money the credit union gives you is called interest. Here’s an example of how interest works:
If you save a dollar a day in a jar in your room, after ten years you’ll end up with $3,650. That’s more than a small chunk of change. However, if you save that dollar a day in your credit union savings account, earning 2.5% interest, you’ll end up with $4,147. That’s an extra $497!
Where does this extra money come from? It’s the magic of compounding interest. Compounding means that if you save the interest (dividends) that your money earns, it will earn interest, too. That’s right; you can earn interest on your interest.
How is interest earned on your account?
The amount you put into the account and the rate of interest your account earns will determine how quickly your money grows. The more you put in your savings account, the larger the compounding effects of your interest.Check out the examples below:
| Amount |
Time in Account |
2.5% APY* |
Interest Earned |
4% APY* |
Interest Earned |
| $100 |
1 year |
$102.50 |
$2.50 |
$104.07 |
$4.07 |
| $100 |
2 years |
$105.12 |
$5.12 |
$108.31 |
$8.31 |
| $100 |
10 years |
$128.36 |
$28.36 |
$149.05 |
$49.05 |
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| $1,000 |
1 year |
$1,025.29
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$25.29 |
$1,040.74 |
$40.74 |
| $1,000 |
2 years |
$1,051.22 |
$51.22 |
$1,083.14 |
$83.14 |
| $1,000 |
10 years |
$1,283.69 |
$283.69 |
$1,490.83 |
$490.83 |
Now, suppose instead of just putting the money in the account and leaving it there for ten years, you added to it at a rate of $10 per week. See how your money grows!
Starting balance $1,000
Add $10 per week for 10 years
Amount deposited $6,200 ($1,000 starting balance plus $520 per year for ten years)
| Ending balance at 2.5% APY |
Ending balance at 4% APY |
| $12,316.87 |
$19,572.79 |
As you see in the examples above, the more money you put in your account or deposit, the more money in interest you will earn. Also, the longer you keep your money in your savings account, the more interest you will earn. Different savings accounts can pay different interest rates so you’ll want to get the highest interest rate you can for your savings account, which is usually at your credit union. By adding to your account regularly, you can build a sizeable sum!
How Credit Unions Can Pay Dividends
When a member wants to borrow money to buy a car, house or other expensive item, they come to the Credit Union for a loan. A loan is an amount of money given to the member for a certain amount of time like one year, two years, three years, etc. The member has that amount of time to pay back the loan plus interest (an extra amount of money) to the credit union. The amount of interest asked from members who get a loan is higher than the amount of dividends paid to members who have savings or share accounts. The money the credit union has left over after paying dividends to shareholders is the credit union’s money which is used to pay expenses.** The example below helps demonstrate how credit unions can pay dividends and earn money:
- Johnny deposits $100 into his share account for one year with an interest rate of 2.5%.
- Susie gets a loan for $80 with an interest rate of 10% and has one year to pay back the loan plus the interest.
- One Year Later. Johnny has earned $5 in dividends making his balance $105.00 in his share account. Susie has paid back the $80 plus $8 (or 10% interest for the loan) for a total of $88.
- The interest the credit union has received from Susie is $8
The dividends the credit union has paid to Johnny is $5
And, the amount that is leftover to pay credit union expenses is $3
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Expenses are employee salaries, supplies, etc.
The examples above were calculated in simple interest.
Click here to go to our savings calculator.
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