How much interest is your money in your bank account earning? Do you know the percentage? Odds are its some fraction of a percent that isn’t worth recognizing or remembering. This is where economists freak out, because many of us aren’t acting as rational entities and aren’t maximizing our wealth/earning potential via the resources that are abundently avaialable to us.
For example, about a year ago, I opened up my first savings account since I was in middle school. I called up my bank, which I had been with for years and told them I wanted to open a savings account. They said they had a great account for me, called a “relationship savings account”, because I had a checking account with the bank. They ran through all the benefits and the Annual Percentage Yield of .05% . I said, “umm, ok” and opened the account. This is how traditional banking is done. However, why be traditional when we are in the age of computers, the internet and online banking!
When I started to get serious about my money, I started to read all sorts of articles discussing high-yield savings accounts (accounts that were earning as much as 2.5% at the time). 2.5% ! That is a 50 times higher return than the “great account” my local bank set me up with. I started to shop for a new bank that day. The catch here is that the majority of banks with high-yield accounts are online banks. There is some trepidation towards putting money into an online bank. Many people feel their money is disappearing because it has become “digital”. Well, for the people that are concerned about such things, they should know that over 90% of the american money supply is digital money. Also, the big online banks are FDIC insured, which means your money is insured by the government up to $250,000. These online banks can offer such great rates because they don’t have the large overhead that comes with having local branches, allowing them to give extra benefits to their customers.
So, it would seem rational to make a transition from your brick and mortar bank to an online bank for your savings account. The next question is, which one or where do I find the right bank for me? Well, I have an assignment for you over the weekend. Go and take a look at this fantastic post written at Get Rich Slowly this week. JD has done all the grunt work for you, all that is left is to take your pick and open an account.
Moving money into a high-yield account is a great start to having your money work for you. If you don’t have much money in your savings account at the moment, don’t worry. Even a few extra dollars a year is likely better than what you would have been getting at your brick and mortar bank. The idea is to build wealth, and once you have enough capital, you will see that the returns from these accounts can be substantial.
Check back here on Monday to see which accounts I have set up and why.
Have a great weekend.