Where can I find 8% or high interest like they use in economics examples of compound interest?

Question

In school when we were taught about interest and the value of investing early, they always used examples where you invest some amount of money for 30 years at 8% interest, or 10%, or some such. No bank I've ever seen gives that! My current savings account is at .05% APR. The most I could get at my financial institution is 3.69% if I put money into a 5-year IRA. Where do our teachers expect us to find 8% interest to invest in? Cuz I'd like to start saving up.

Answer 1

I am not exactly sure what you are looking for; but there are quite a few mutual funds that over the long term have yielded considerably more than 8%. PENNX has a long term yield of about 13%. GAM has a long term yield of about 16%. GAM is what is called a closed end mutual fund. They have just paid their dividend for 2006 of about $3.00 so now would be a great time to invest. Others with super track records are TDF with a long term yield of 10.73% since inception but more recently about 30%. IIF since inception has a yield of about 13.4% but more recently 40%. CHN has a return since inception of only about 9.3% somewhat more in line with your example. All of these are equity funds.

If you are interested in a debt fund, that is a fund that actually pays interest rather than dividends based on growth of assets, then here are a few examples.

ERC currently pays 8.15%, a fund that invests in debt instruments.

FAM currently pays 8.49%, similar to the above.

These yields however are at this level because the investments are in low rated debt instruments.

Answer 2

8-10% interest is too high to be the historic rate of return for bank accounts/money markets. It is however, the generally accepted range given for stock market performance.

If you are going to open an IRA, good for you, but don't do it with this financial institution. 3.69% is about the going rate for a money market account, which is so low that you will oh so barely outpace current inflationary levels. Instead you should open the IRA with somebody like TD Waterhouse, Chuck Schwabb, Fidelity Investments, etc... That will allow you to pick and choose how to invest the IRA. Subject to just a few exceptions (most of which are brokerage restrictions, not government restrictions), you can invest your IRA in any type of asset, be it mutual funds, exchange traded funds, individual stocks, corporate/fed/municipal bonds, futures contracts, and options. The important thing to remember is that "IRA" merely describes the investment vehicle and NOT the investment(s). And when you say that you want to start saving up, I hope you understand that an IRA is to save money for retirement. Except for a few circumstances specified in the tax statutes and regulations, you cannot withdraw from an IRA before reaching 59 and 1/2 years of age without incurring a penalty.

Answer 3

Just as a point of information, the rates being offered by your financial institution are well below today's normal rates, and therefore should probably be avoided.

You will not find 8-10% yields in savings/money market/CD accounts today. To obtain such yields you will need a fairly substantial sum to invest, and you will have to assume more risk than is the case with the types of accounts mentioned above. For example, there are high-yield bonds (also known as "junk bonds") with yields above 8%, and there are preferred stocks paying dividends in that range. These are securities you must buy through a brokerage. Their yields are so high because the securities carry a risk not present in lower-yielding items. They may default, their issuers may go out of business, they have nothing like the FDIC insuring the safety of your money,....and more. If you accept all that, you get the higher return - unless there is a failure or a default, in which case you may get nothing.

Answer 4

8% used to be an average interest rate. It has been years. If you like the safety of a savings account, try a fixed annuity. Not one offered by a broker or bank, but directly through a reputable insurance co. The company I work for offers 7% right now. Higher than most. Depends on the amount you have to put it the annuity as to if it will work for you. Our minimum is $5000

Answer 5

The books that use 8% and 10% examples of interest rates were probably written when the inflation rate was 6% to 8%. With the lower inflation rate today, there's no reason for the "risk free" interest rates to be as high as they were several decades ago.

You have to keep in mind that your "real" growth of wealth has to factor in the inflation rate. That is, if your wealth quadruples while retail prices double, your real purchasing power has actually only doubled even though you have four times as much money.

For example, here's a chart of the "real interest rates" over the past 30 years:

http://www.martincapital.com/chart-pgs/CH_mmnry.HTM

...and a chart of inflation over the past 30 years:

http://www.martincapital.com/chart-pgs/CH_infst.HTM

Answer 6

well if you send me an email attached to my name I can show you to things one a savings account that earns 4.+% and also a UL Life Insurance Policy as long as you are going to keep it for 15 years right now it is earning 9.62% interest