We all have to keep cash bank in either a checking account, savings account, or both. We use it for bills, an emergency fund, and general peace of mind. My grandparents used to put their cash in the bank down the street every week to save their money. My parents did the same thing. It was smart when interest rates in savings accounts grew accounts by 5, 10, even 15 percent a year. Most wall street stock pickets would kill for guaranteed rates that high in 2017.
The unfortunate truth is that banking today isn’t what it was even a few years ago before the 2008-2009 market crash. Since then, rates have pretty much hit the floor and it they probably are not making a big jump up anytime soon. So what do you do?
Well most millennials such as myself had the same bank account since we were kids or since college. Your parents may have had a joint account with you, or you may have had your first account during college to pay bills while living outside of the nest. Those like me set up an account at the closest bank to where we lived. For me, this account was my sole account for a number of years. The problem with this is that once I had some money saved I was leaving some on the table by using that big bank down the street.
The interest rate on that account was in the realm of 0.05%.
On $1K the interest is 50 cents
On $10K the interest is 5 bucks a year
On $100K the interest is 50 bucks a year
I’ll take all of the free interest I can get. A savings account won’t make money quickly, but if you are going to have cash sitting in a bank anyways, why not take 20 minutes and increase your return?
Eventually I wised up and learned about online banks. Since they operate solely online, they do not have the overhead that many other have with branches and loads of employees. This allows them to increase their savings rates for account holders. Us millennials feel more comfortable exchanging private information and financial data online than our parents did. They “need” the false sense of security that comes in the form of a physical bank where you can talk to a live human being in person. Luckily I don’t feel or need that sense of security so I choose to follow the free money.
Once realizing this, I took 5 minutes to scan the online banks out there and chose on that was of course FDIC insured and offered a higher interest rate. By higher, I mean 15-25 times that bank rate. Again, we are still talking about small numbers, but if I get easily get some extra money deposited in my account I’ll do it. At thsi time the rate was about 1% (today they are above 1.25%). With a rate of 1%, you would make:
On $1K the interest is $10 bucks a year
On $10K the interest is $100 bucks a year (Pays for Netflix)
On $100K the interest is $1000 bucks a year (Pays for the cable bill)
Again not getting rich quick. But it was the fastest cash I likely ever made. For those starting or working on a house fund, this is the best place to keep that cash. It will be sitting for several years and slowly growing as you add to it. Why not take that free cash?