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When Savings Accounts Steal Your Cash, Cash In Online!

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When Savings Accounts Steal Your Cash, Cash In Online!

Whether you’re a professional, executive, or a retiree, we all have one thing in common: Cash!  While some have a small amount (hectic lives stretching you thin), others have lots (pension checks piling up or large bonuses sitting “collecting dust”).  Regardless of how much (or why), most keep their cash in a stodgy bank account where it barely grows. I did write about this topic in one of my early blogs, but with interest rates on the rise, now seemed a great time for a revisit.

The issue no one talks about

I often see clients with a liquid savings account sitting in a traditional bank getting paltry interest rates.  The banks call them “savings” accounts; however, I see them more as a “deposit” account.  Honestly, you’ll almost be equally served by burying you cash in a hole in your backyard.  I prefer to help our clients maximize their finances and money – go figure, right?  In all seriousness, I rarely recommend traditional savings accounts, especially when better alternatives exist.

Traditional banks boast savings accounts (and even “premier savings accounts”) which pay between .01%-.1%.  (As a note: the Federal Reserve targets 2% as its inflation goal.)  Thus, those of us piling up money in these savings accounts (because they are “safe) are literally losing money every single day to inflation.

The alternative

There is another “savings” world out there.  It’s the little talked about world of online savings accounts.  Generally, these have no minimums, no fees, are FDIC insured, and offer substantially higher interest rates (as they have virtually no overhead).  My favorite online savings account these days is www.liveoakbank.com. I’ve spoken to the company’s head banker and was very impressed.  Live Oak Bank is committed to being in the top 5 as it pertains to interest rates.  Another upside is this bank will “stay in their lane,” that means you won’t get solicited about other products they offer (like many of the other banks out there).

So, what does a bank like Live Oak pay on insured savings account?  A whopping 1.7%!  They are not alone in this market, either. There are many others competing in these same waters, such as Synchrony and Marcus.  In other words, that is 17-170 times better than your generic brick and mortar bank.

How it works

It’s fairly easy.  Once you find your desired online bank, you create an account. That usually takes about 5 minutes or so.  Typically, you’ll have to do a small transfer to connect the online bank to other institutions.  This helps set up a kind of “standing instruction.” This will make it easier for you to transfer money back and forth between accounts when the need arises.  Once established, you go online (or to their app) and simply put in the amount you care to transfer and date.  Then, voila!  It typically takes 1-2 days for your money to transfer.   After that, the additional earnings begin.  Simple, easy, and a no brainer from my perspective.

Related: Six Hacks to Automate Your Financial Life

My recommendation

Just to show you I practice what I preach, I personally use my TD bank account to pay all my day-to-day bills and expenses.  Then, everything else gets transferred over and sits in my emergency fund savings account.  With interest rates on the rise, I’ve noticed my rate going up every couple of months, too.  Something to keep in mind when finding the right online bank for you is to read the fine print.  Some offer an introductory rate or teaser rate then lower the APY without you noticing, so steer clear of those institutions.

I look forward to the 25th of each month (when my interest pays).  There is just something nice about watching that free money pile up!  Trust me when I say take that 5-10 minutes out of your day, it’s worth it.  Your current savings account is stealing your cash; it makes better sense to cash in where you can!

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