Smart Saving 101
Let’s talk about where to save smart today (and it’s not at local bank savings account). With traditional banks (i.e. Chase or Bank of America) paying such now interest rates on savings account, what’s the point of having one? I just checked my savings account, and Chase is paying me 0.01%. Yes, you read that right: ONE HUNDREDTH OF ONE PERCENT. As you can see from this post, my girlfriend hates Chase. I had this account since my mom opened it for me before I entered college, which I will be closing very soon since it is completely useless. I have the minimum amount needed [$300] in the account just so I don’t get charged a monthly fee. They are hoping for low-income customers to dip below $300 so that they make their money off the monthly service fee. The service fee for a Chase Savings Account is $5. Let’s put this in a scenario: You accidentally dipped below the minimum amount once. For that month, you get charged $5. How long would it take you to make back that money? Let’s say you put in money so that it’s back at the $300 minimum. At 0.01%, it will take you 167 years to make back your $5. That’s ONE HUNDRED, SIXTY SEVEN YEARS! That’s how insignificant their interest rate is. So why would you want to use it? Stop being lazy and switch to something better.
If you go ask the bank for a better option, they’ll say that they have another product with higher interest rates. Behold the Certificate of Deposit, aka CD. Summarized, a CD is an agreement to deposit a certain amount of money for a certain amount of time. If you withdraw your deposit before the end of the CD term, you will lose some or all of the interest earned. Pretty strict if you ask me. Let’s take a look at current rates at Chase as of 10/4/2011:
Wow, for only 5 years, you can earn interest at 1.25%! Or even better, 10 years will get you a 2.25% rate! So why didn’t I open a CD? Because I need the flexibility in case of an emergency. Interest rates of 1.25% or 2.25% is not enough for me to stash away money so that I can’t touch it for years. I’m sure most of you agree.
Let’s move on to my solution to storing my money. I have an American Express High Yield Online Savings Account. Other high yield savings account include banks like ING, Everbank, Ally, SmartyPig, and more. Most of them are online banks where there is no actual branch, but you are trading in convenience for higher rates.
Currently, American Express is paying 1%. It may not seem like much, but I have complete and quick access to my money. This is such an easy way to earn money from doing nothing. I’ve withdrawn money out of American Express twice now, and both times, I had the money NEXT day even though they claim that it might take an additional day or two. I chose American Express because they offered very competitive rates and customer service for me was top notch.
Now, let’s compare American Express to Chase Savings and CDs. It is 100 times higher than my Chase Savings Account and in order to beat American Express Online Savings, I will have to get a 5-year CD. Instant access to my money or 5-year wait for nearly the same rate? It’s a no-brainer if you ask me.
Why not have your money make 100 times more than it’s making right now? Make a move to a high yield online savings account today. Stop being lazy. It only take 15 minutes to set up and maybe a week to verify all of your information. Remember, every little bit of savings count, and it’s the perfect way to begin a little passive income. You only have to do this setup once to begin earning forever.