How Interesting

Original Post: 4 February 2014
Posted Here: 29 November 2017

Readers sometimes ask writers, "Where do you get your ideas?" You may not see the connection in what follows, but that question popped into my head the other day.

Way back when I lived in northeastern Ohio and was in grade school, my folks decided that my brothers and I should learn about saving money. My dad explained the advantages of compound interest and my brothers and I decided to give this

get-rich-quick scheme a try. Our folks took us to the nearest bank, over in Greentown, and we each started a savings account.

Back then, in the early 1950s, the bank paid 3% interest, compounded annually. According to the teller, at that rate our deposits should double in a little over 20 years. Although that sounded like a pretty good deal, we never got to take advantage of the scheme. My dad decided to move us to Oregon and we closed out our accounts before we took off for the Beaver State. Unfortunately, we didn't move west. We just went out, came back, and settled down about 30 miles east of our original home. We never did open new savings accounts.

When we moved to Arkansas, my wife and I opened a savings account at BancorpSouth (or whatever it was called several owners ago) in order to qualify for a home loan. After all, as the loan officer said, where would they get money to loan us if nobody made deposits?

I was reminded of my childhood get-rich-quick scheme recently when our BancorpSouth savings account statement came. Interest is compounded monthly, so the principal in a savings account should grow even faster than when compounded annually. But - and this is a big But - the interest rate some 60 years later is no longer 3%. Unlike most everything else which has increased over the years, interest rates on savings accounts have gone south. Our rate is just 0.03%. According to an estimate provided by an online site, The Money Chimp [www.moneychimp.com/features/ rule72.htm], the time required for your principle to double is about equal to 72 divided by the interest rate. Back in our Greentown account, our principal would have doubled in about 72/3 = 24 years. For our BancorpSouth rate, 72/0.03 = 2400 years. Don't hold your breath!

With that in mind, you might ask "Why does anyone deposit money into a savings account?" or, "Where does a bank get that money that it loans out?"

Our BancorpSouth statement also had another interesting feature. Our monthly interest comes to the princely sum of $0.09 - yes, that's nine cents. The postage on the envelope that notified me of our account's growth was $0.38. Adding in the cost of the envelope and the paper for statement, the bank spends almost five times as much to keep me up to date as it pays me in interest. How about adding that extra 40 cents to my account and letting me go online to check my interest and balance?

I'm sure that there must be some sort of story here. Going back to the reader's question at the beginning of this post, here's the answer: Ideas come from the most humble of places.

Keep reading/keep writing - Jack