Let’s say you have saved VND100 million. How can you grow it over three years, or at least protect it from losing value? According to Prof. Campbell Heggen, Financial Planning Lecturer of Business & Law Faculty, Deakin University, some advices below may come in your handy:
Open a savings account
One of the best ways to grow your savings is by taking advantage of a savings account that pays compound interest. Currently, most current accounts will receive very little non-term interest on your deposits. For example, you deposit VND100 million in your current account at 0.1 percent per annum, you would earn VND100,000 in interest each year. On the other hand, a savings account at compound interest would benefit you with much more attractive interest.
Compound interest means you earn interest on the money you originally deposit, and interest in the next terms is to be calculated based on the original deposit and the interest you have just earned. For example, if you start out with VND100 million in your savings account with a three-year term at 7 percent per annum, interest paid at maturity, then it will give you a total of VND121 million.
Of course, it is important to read the terms and conditions for each account type carefully to know what you should go for.
Open a term deposit account
If you plan on depositing a considerable sum with no further deposit or withdrawal, a term deposit account can be a good choice. This type of account offers a similar interest rate to savings accounts, with slightly higher interest rates and longer term.
Term deposit is a low-risk investment and described just like “putting” a defined amount of money into an account for a fixed term with a fixed rate of interest.
Therefore, if you have spare money which you think you are not going to spend in the next, say, one or three years, a term deposit could be a good option. However, be sure to examine its drawbacks. For example, penalties may apply if you wish to withdraw your money before maturity.
Invest in stock market
Prof. Heggen gave an example of The Australian All Ordinaries Index, which enjoyed an annual average return of more than 9% over the past 30 years. Though you may need to invest more time, knowledge and skills than what you need to for a savings account, the stock market can provide higher profit than your expectation.
To keep your equity safer, you can consider to choose an investment fund, in which the shares are bought or sold on your behalf. According to the study, such investments in funds have conventionally given average annual returns which are higher than savings accounts or term deposits.
Being familiar with market transactions and self-equipped with financial knowledge as well as analysis skill can enable you to start your own investment. You may choose to buy the stocks of leading enterprises for long-term investments in view of the fact that most of them have solid and high growth rate, and their market liquidity is good for you to easily convert your shares to cash when needed.
A wise choice on a profitable investment fund or stocks for long-term investments not only helps you save money but also adds value to your equity, quickly and efficiently.