Power of Dividends
How saving works – it's all about dividends or interest
One of the best ways you can grow your savings is to start as early as possible.
That's because of the power of dividends, or “the miracle of compounding.” Dividends are similar to interest. It’s important to remember most credit unions call the money it pays you for keeping your money on deposit at the credit union a dividend. It’s important to remember that not all accounts pay dividends or interest. So shop around and compare the types of accounts that are available.
Most of the time, you have to work to get money. But you may not know that your money can work for you – everyday. That's a good deal!
Why should credit unions PAY YOU dividends or interest on money you deposit with them?
Because, they want to use your money to make loans to other people.
The dividend or interest credit unions pay is a percentage
that rises and falls as the economy changes.
There are two kinds of dividends or interest
- Simple dividends or simple interest - calculated on the amount of money you deposit.
For example 5% annual percentage rate (assuming you do not withdraw any of your money):
5% (APR) on $100 is .42
$100 + $.42 (dividend) = $100.42
- Compound dividends or compound interest - a more powerful way to earn money. This dividend is calculated on your deposits plus any dividends you've already earned. So the dividends the credit union paid you last month now becomes part of your new total, and you earn dividends on that money too. Your money is growing all by itself. And you don't have to do anything but keep your money in the credit union. It's that easy!
For example (assuming you do not withdraw any of your money):
5% (APR) on $100.42 earns $100.84
$100.42 + $.42 (dividend) = $100.84
5% (APR) on $100.84 earns $.42
$100.84 + $.42 (dividend) = $101.26
By saving regularly, and for a number of years, your account will continue to grow.
When the amount of money you have deposited in a credit union – or in an investment – gets larger, compounding gives you spectacular results. See for yourself and let the Compounding Calculator do its magic.
Watch dividends grow.
With the power of dividends behind you, you can double your money. Want to know when? Use the Power of 72 and find out!
It is never too late to start saving!
Maybe you want to buy a car. The sooner you start, the sooner you will find yourself behind the wheel. Credit unions can help you by paying a dividend the first day you make a deposit. Sometimes you need a certain amount of money in your account before it starts earning a dividend. If it does pay dividends, after the first month, the credit union will pay you a dividend on your dividend!
Example: The Power of Dividends
If you invest $10, you will first earn dividends on that $10. But every month after, you'll earn dividends on the $10, plus dividends on your dividends.
This is a fun way of looking at how your money can grow. If you start out with $10 in your savings, it can grow over time. You can see what happens if you put money into your savings each month of $10, $15, and $50 added up over five years.
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Saving a little more each month means a lot more in the end! See the difference saving $5, $10, $20 a month for 5 years can make.
||Dividends Earned per month|
||$5 per month|
||$10 per month|
||$20 per month|
Initial Deposit $10. 3.5% Interest Compounded Monthly