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Savings accounts

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std7mag

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So i'm having an ongoing umm, discission, with my wife about savings accounts.
Our account through a local credit union pays 0.01%.
I've been after her to transfer this money to an online account that is currently paying 2.20% interest.

I'm thinking there is a difference on thinking between her and i about how banks work.
She seems to think that to increase you money in the savings account is to save more and put it in, not actually earning more on that money.

I was taught that banks use money from said accounts to make money in the form of loans, to be able to pay you interest on the money. You are essentially an investor.
If i'm investing my money, i would actually expect some interest paid back for said investment.

Am i wrong in my thinking?
 
You are correct in your thinking. Your credit union is paying you .01% and then turning around and lending your money to their loan customers and getting 3-5%. That’s how banks/credit unions make their money. They can’t lend out more than what they have for deposits. 2.2% on just a savings account is a very good rate, just make sure that it’s actually a savings account and not a CD, where you’re required to not touch the money for the term of the CD.
Your wife is also correct as the more money you put into the savings the higher dollar amount the interest the bank will have to pay you.
 
Always good to have cash (FDIC savings account) for emergency funds, but long term you are actually losing money due to inflation. In 2018 US has 1.9% inflation. That means if you put $1000 cash in a 0.1% savings account on Jan 1, 2018, even though the account balance will say $1,001 on Dec 31, 2018 (an oversimplification due to "compounding interest"), you will only have $981 in actual spending power. So, you need something like that FDIC savings account for your emergency fund, but long term savings need to be in accounts that will likely return greater than inflation, otherwise you are actually getting poorer each year.
 
I'd side with your wife's line of thinking. To increase you'r savings, put more money in it. The interest rate is not going to make you rich.

That said, if you can get 2% on your savings....why not.

I think the bigger question is what do you have your savings for. To me savings and investments are two totally different things. I'm not seating the interest on a savings account the same way i would on an investment account.
 
Good points all! And thank you for your feedback!

I opt for my 401K for my investment. That and a couple of small stocks that are fairly recent.
My savings is more for a just in case. Even at that, i would still like to see some return on it.
It's not a get rich thing, just a smarter way to do business thing.

Oh, and current interest isn't 0.1%, it's 0.01%. Not even worth calling it interest.
 
std7mag said:
Good points all! And thank you for your feedback!

I opt for my 401K for my investment. That and a couple of small stocks that are fairly recent.
My savings is more for a just in case. Even at that, i would still like to see some return on it.
It's not a get rich thing, just a smarter way to do business thing.

Oh, and current interest isn't 0.1%, it's 0.01%. Not even worth calling it interest.
Click to expand...

I would shop around some of your local banks and see what they’re offering on their savings accounts. I would guess they’d be offering at least 0.2% or higher depending on the amount. There’s also Money Market savings accounts that’d probably be close to 1%. They’ll have a higher minimum balance requirement, but are worth it if you don’t have immediate plans for the money.
If it’s money you want to have on hand for emergencies it’s going to be a heck of lot easier accessing it if it’s somewhere local....online you’re going to have to wait for them to mail a check which could be up to a week.
 
I opened an American Express on line account as a bridge account. The rate is just over 2%, 2.15 or 2.10, I don’t remember exactly. No monthly minimum or fees.. that’s about the best you can do can do at this point unless you want a certificate of depression( yes that was in intentional ) . Rates are horrible, and even though money is still fairly cheap for us to borrow it’s pathetic that we can’t a get return on our end. The US banking and insurance lobby has the american people over the coals and the political class is all smiles.
 
Online banking is going to offer a better rate for a savings account balance than a brick and mortar bank. Your local bank rate of .01% is typical. You may also avoid some fees if average a minimum amount, usually $500 balance, at the local bank in the account.

If you rarely touch the savings account then moving the bulk of that amount over to an online account is going to earn you another $2 a year per $100 than if continue to do in 2019 what you did in 2018.

Ally.com is one such online bank you might want to evaluate.

Now, coaching the spouse to a position of comfort on placing money in a bank that she does walk into is another matter. Perhaps she will allow you to pay her .10% of the current savings account balance, about 10 cents per $100 a year, for her to go have a fun time doing what she enjoys and you can move the entire savings account balance to an online bank and pocket the spread for you to use to hunt, about $2 per $100 a year.

Any extra money for savings should go into the local bank since your spouse likes that then at end of 2019, make her the same offer, .10% for the 2018 balance plus now also for the 2019 balance then you move over that entire balance to the online bank. Rinse and repeat.

Soon you will be hunting desert bighorns.
 
Last edited:
LopeHunter said:
Online banking is going to offer a better rate for a savings account balance than a brick and mortar bank. Your local bank rate of .01% is typical. You may also avoid some fees if average a minimum amount, usually $500 balance, at the local bank in the account.

Ally.com is one such online bank you might want to evaluate.
Click to expand...


I second Ally Bank
 
I like the way you think, Lopehunter!
Thinking more Colorado and Wyoming elk instead of bighorn, but i like the way you think!

I have been looking into several places. Several of them actually have atm cards for instant access.
One offers an online checking with 1% cash back on the checking account as well.
 
Your rate of return is (1+r*(1-T))^N/2^D, where
r is the annual interest rate,
T is your tax rate,
N is the number of years invested, and
D is the number of divorces because you didn't listen to your wife ;)

I'm guessing your wife is saying something like if you saved the cost of one box of ammo you would gain as much money.

If you don't need them for a year I-bonds are currently paying Inflation+0.5% (currently 2.8%) and you get to defer your taxes.
 
I'm planning on moving my money next week to an online bank. My insurance provider State Farm now does banking and has a money market account that currently pays 2.25 % and you can write up to 6 checks a month against it. Moneys available to use if you need it, and pays a much better interest than my current banks money market rate.
 
You should be able to gt a way better rate through a credit union. I have several accounts with my local credit union. They vary but I have them a s high as 1.5%. The big deal for me is the ability have cash on hand. .01% is unacceptable.
 
I would look at Barclays or capital one in addition to ally both of great rates. In addition to a goer APY Because they are online only they are way easier to work with than a credit union, in my experience.
 
Read the account agreement closely for online banks, especially the part about what they consider to be dormant or abandoned accounts. Discover has a good savings rate currently.
 
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