The Black Hole of Checking
Ewa Straszynski
Senior Financial Services Associate, International Recruiter, Educator, and Entrepreneur
What’s the difference between a black hole and a checking account?
One is a massive void with a pull so strong that anything that enters it is stretched impossibly thin and then disappears with a finality that not even NASA scientists fully understand.
… And the other is a black hole.
Jokes aside, did you know that black holes and your checking account actually have a lot in common? Spaghettification is the technical term for what would happen to any object if it gets close enough to a black hole. The intense gravity stretches and compresses the object into a thin noodle shape. In spite of resembling a piece of spaghetti at this point, the object doesn’t actually “grow” at all. Its mass remains the same; it’s just stretched into a really uncomfortable state.
The money in your checking account has the potential to become uncomfortably stretched, too. Why? If your money is just sitting in “The Black Hole of Checking” for years on end, it isn’t growing. And depending on what you’re able to add to it over time, each dollar might be stretched thinner and thinner during your retirement years.
Where are you storing your retirement fund? If you’re keeping it all in your checking account, you’re depriving yourself of the potential for real money growth!
Say you already have $10,000 saved for your retirement. A checking account comes with a 0% interest rate. That means a flat $0 rate of return. After 10 years of sitting untouched in a checking account, you’d still only have your starting amount of $10,000.
But if you took that $10,000 and put it into an account with a 3% compounding interest rate, after 10 years, your money will have grown to $13,439! That growth also happened without regular contributions to the account. Can you imagine what kind of growth is possible if you start saving now and contributing regularly to an account with a compounding interest rate?
This is the power of compounding interest – interest paid on interest rather than on the initial amount. (This is also a huge part of why a higher interest rate is important!)
So what are you waiting for? If all of your money is disappearing into that Black Hole of Checking, this is the exploding star “sign” you’ve been looking for: Don’t spaghettify your money. Give it the chance to grow with the power of compound interest.