I'm no financial guru but I did come across this money tip in a financial book several years ago that has helped us tremendously. I know saving is hard, especially these days, but if you have money saved, or are working to save money, there are more options to "store" your savings than the basic savings account at the local bank or a jar buried in the backyard. :)
We had never considered putting our savings anywhere except a regular savings account. We, of course, had heard of Money Markets and Certificates of Deposit, but never really considered them because we though of them as more of an investment. To us "investment" meant risky and/or inaccessible money. We already had investments, we wanted our savings to be safe and easily accessible in case we needed it.
Have you ever looked into a Money Market Deposit Account? They are different than a Money Market Mutual Fund which is what I always thought of when I heard "Money Market". In a MMMF your money is at risk because they are not usually FDIC insured (although the government has recently passed some exceptions to this due to the economic times). However, a MMDA is always insured by the FDIC (up to $250,000). You should research MMDAs yourself, but I consider them a better way to save your money because they pay a lot more interest than a regular savings account. TEN times as much!
Unfortunately, these days that's not saying much, but every little bit helps. When we first opened our MMDA the interest rate was 5% and since we had been saving for a new house we saw very nice monthly interest payments (over $100!). It became very clear to me how some people can live on their investments. Our money did nothing but sit there and they PAID US!
The interest rate has dropped considerably in the last several years. The current interest rate for our MMDA is 1.2% but that is still more than TEN times the interest rate on our savings account at the local bank. The interest rate there is currently a pitiful .1%!! When we looked into opening our MMDA we went to Bankrate to see who was offering the best interest rates. We called our local bank to give them a chance as well but their rates were no where near the one we ended up getting at Capital One. We had never considered a national bank, but after a bit a research felt that it was a safe option.
Just for fun pretend you have $5,000 in your savings account. If you keep it at bank in a savings account that earns an annual percentage rate of .1% at the end of one year (with no deposits or withdrawals) you will have $5,005. That would be $.42 a month in earnings. Don't spend it all in one place! :) Now if you took that $5,000 and put in the national bank's MMDA that earns an annual percentage rate of 1.2% at the end of the year you'd have $5,060 or $5 per month. I'm not great at math but $5 a month is better than $5 a year!! That's making your money work for you! That's what rich people do and you should consider it too.
The more money you have or the higher the interest rate the better it gets! If you can deposit some money throughout the year you'll earn even more! It's the miracle of compound interest!
If you want to do some math, here is a Savings Calculator. Put in the amount you currently have in savings and the interest rate you are currently getting. Be sure to choose "compound annually" from the drop down menu since most interest rates are annual. Then go to Bankrate and look to see what kind of interest rate you could be getting elsewhere and pop that number in instead (today it's about 1.4%). What you see might get you thinking!
We have been very pleased with our savings working a little harder for us. I told my sister about our MMDA several years ago (a few months after we got ours--I was so happy because of those interest payments I tell you!) and recently asked her if she was satisfied her experience. She said she definitely was! She uses Capital One as well and she said that not only does she love the higher interest rate she thinks their customer service is excellent. She liked it so much she just recently opened second MMDA for her son's savings.
I'm not telling you what to do with your money. I'm just throwing this out there because a few years ago I wasn't aware of any of this and maybe it will help someone save a few more dollars!
[When researching MMDA and Savings accounts be sure to take into consideration: minimum initial deposit, minimum balances required, interest rate, monthly fees, ways you can access your money, free services (like checks) and number of transactions per month required or allowed. Like I said we chose Capital One's MMDA. It has NO minimum balance, NO monthly fees, free checks, and limited withdrawals. We've been very happy with them. If you have any questions let me know. And, no, I don't work for Capital One nor are they paying me for this glowing endorsement. Unfortunately, they don't even have a referral program! :)]
2 comments:
One thing that I have done is I actually have opened up a checking account at Harbor Credit Union. I get paid to have my checking account there. Pioneer Credit Union also has a similar type of checking account. You have to do 12 debit card transactions in a month, have direct deposit or an electronic fund transfer and receive your statement online and you get 2.5% interest, plus all of your ATM charges refunded. I've had this account for just over a year now and have earned A LOT more interest than I would have had in my old account which was a big fat ZERO dollars. The account at Harbor is called Go Green Checking, Pioneer's is called ChaChing. I would probably recommend Pioneer because there are a lot more of those around here than Harbor. It also looks like Pioneer has a little higher interest too.
Theresa,
That's a great rate right now! What do they have for savings accounts? We don't like to keep all our $$ in checking. Are the interest rates as good in their other accounts? I'm assuming the 2.5% is annual and not guaranteed right?
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