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The 1% No One Seems to Care About

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The 1% No One Seems to Care About

If I had a dollar for every time a client showed me an array of savings accounts at multiple institutions, I’d have several extra more dollars.   On the flipside, if I had a dollar for every time I saw a client with a cash reserve sitting in a .1% interest savings account, well now I’d be truly a rich man!

What’s Missing?
 

Many people we meet have short-term savings in bank accounts which earn minimal interest (if anything).  When asked why these dollars aren’t in higher interest earning savings accounts, they look surprised that we’d care. It’s these little things that help us optimize your wealth.

I’ve found people care about rate of return on just about everything:  investments, homes, coin collections, and even children.   But when it comes to their cash, they are simply apathetic.  I’ve often asked myself why this is the one area people have no regard for how it grows (or doesn’t grow).  The only two things I can surmise are:

  1. We are simply uneducated to alternatives.
  2. The perceived value of the “gain” doesn’t warrant the “effort”.
     

My job as a financial planner is to maximize every opportunity you have to make smarter financial decisions. Earning interest on your savings account is a common oversight and few advisors talk about it.

Who’s Paying Who (to Hold My Money)?
 

There is a growing niche in financial services:  the online only bank.  These banks have minimal overhead and are able to provide rates that the traditional brick and mortar banks cannot.   Differences between these interest rates is often huge!  Which is why it is so shocking how few people take advantage of it.  For instance, Bank of America’s savings account rate (which they boast about, “Make more on your savings!”) is paying a whopping .03-.06%!  That’s not far off from you paying them to hold your money. Let’s compare that with two of the online only banks I like to use, Ally Bank (www.allybank.com) and Goldman Sachs Bank (www.gsbank.com).  These two pay 1% and 1.05% on savings accounts respectively.  This is a staggering difference.  It’s roughly 1% more than where most people keep their money, and very few are considering making a change. Both of these online banks are FDIC insured and neither have minimum account balances, or fees.

Related: A Family Planning Tool: The Donor Advised Fund

Start Increasing Your Savings Account ROI.
 

It is a really simple process. Create an online savings account (i.e. Ally Bank) and link it to your primary checking account (i.e. TD Bank Checking Account). Then go online and transfer dollars back and forth.  I put a few dollars each pay check into my Ally Bank Savings and leave it there as a rainy day fund. You can transfer “IN” as many times as you’d like per month, but there is typically a monthly maximum on the amount of times you can transfer money “OUT”. There are no limits on the amount. Ally Bank has a 6 time billing cycle transfer OUT limit, which doesn’t strike me as ever being a problem but it’s certainly worth being known ahead of time.

Can Someone Do It For Me?
 

If you are too busy to take advantage of this financial planning nugget you can let someone else do it for you.  Check them out at www.maxmyinterest.com.  I came across this company last year and even spoke to the owner.  They will hook into your checking account and make sure your dollars are moved around to benefit from the highest interest rate on the market while staying under the FDIC protected $250,000 at any one institution.

And, there you have it. Now you know how to take advantage of earning more money and hopefully putting yourself in the best financial position you can.

As Benjamin Franklin once said, “A penny saved is a penny earned.” A penny earned is, well, a penny earned. And over a lifetime, these pennies could be thousands of dollars.

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