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How Save Your Money Without Losing Purchasing Power

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How to Save Page 1
How to Save
Ways To Save Your Money Without Losing Purchasing Power To Inflation
University of the People
1104 Macroeconomics
Instructor: Getachew Woldie
Due: Wednesday, 6 May 2015
How to Save Page 2
A man seeking financial advice said to his friend, “I need to start saving some of my income and want it to retain as much value as possible, what are my options?”
“You have five main saving options.” Replied his friend. “Cash, checking accounts, savings accounts, bonds, or stocks. When saving you must keep inflation in mind. In order for your savings to retain their value they must at least keep pace with inflation rates. If you wisely invest your savings, then you can actually make a profit with it.
The average rate of
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You can easily get a checking account that has no fees or minimum balance requirements. A checking account is only a small step above cash when it comes to saving. A checking account is less risky as it protects your money in the bank from being stolen, etc., but it does not protect your capital from inflation. It is also nearly as liquid as cash and is thus a fairly similar option.
Savings Accounts
Saving accounts, your third option is a step up from the last two options, but not by much. Like the checking account you can get a saving account from most banks. The average savings account has a 0.06% APY, annual
How to Save Page 3 percentage yield, or interest. Thus a savings account is low risk and fairly liquid like cash or a checking account, but still does not keep up with inflation rates.
Bonds
Bonds, the fourth option also have their pros and cons. A bond is essentially a certain amount of money lent to a company or business for a set amount of time. A bond issuer such as the US Treasury first decides that they need say $1 million, they then divide it up into say $1,000 sections (the price of a bond is determined by supply and demand). Bond holders buy those bonds and at the end of a period they turn their bonds in to receive their initial amount back plus some interest. The amount of interest the holder receives is based on the riskiness of the bond and the market rates. The benefits of bond holding are the interest which can help counteract the
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