Savings accounts

[Mountain Man]

I would definitely shift the funds into a new online savings account. I switched to Discover about a year ago and am earning over 2%. Sticking with a 0.01% interest rate instead of switching is just like throwing money in the trash.

 

[BackofBeyond]

Vanguard or Fidelity will have a money market account paying 2.50%.

+1 for Vanguard. In typical Dave Ramsey fashion, we have $1000 in a savings account for emergencies, and six months worth of “prudent reserve” stuck away in a Vanguard money market.

 

[Pucky Freak]

Your wife is correct. Show me one millionaire who made his riches earning 2% on his savings account instead of .01% and I will change my opinion. I would prefer my savings account offered me 0% interest so I would never be the slightest bit tempted to think that this account is an "earnings account." Why, because whether it is making .01% or 2%, the purpose of the account is to park money there if I need it in a hurry, and absolutely nothing else. I made the most money in 2018 by putting income money into accounts. This is a 5 digit number. I made the second most money that year from investment interest. This is also a 5 digit number. I made the third most money on interest from my savings account. This is a one digit number. Oh, wait, if had I one of those slick online savings accounts with a 2% rate of return, I could have splurged at Cracker Barrel. My loss.

Online banks have some advantages, but the 2% rate of return is a gimmick to lure in customers to misusing the account for something other than savings. 0% is better than 2%, not mathematically, but behaviorally, because I won't get the illusion that my savings account is some kind of investment.

 

[whiskeydog]

Online banks have some advantages, but the 2% rate of return is a gimmick to lure in customers to misusing the account for something other than savings. 0% is better than 2%, not mathematically, but behaviorally, because I won't get the illusion that my savings account is some kind of investment.

Wow...just wow! I can tell that not only are you not good with money, but you likely failed 3rd grade math as well. 0% is better than 2%
An online bank is no different than any other bank. My “brick and mortar” bank is USAA...they don’t have a branch in MT though. So...basically online. If you only have a couple hundred bucks in your savings account, then maybe there isn’t much difference in 0.1% and 2%, but if you work full commission like me, and need to keep a large sum in reserve, the yearly difference can be in the thousands.

 

[Deleted member 28227]

Your wife is correct. Show me one millionaire who made his riches earning 2% on his savings account instead of .01% and I will change my opinion. I would prefer my savings account offered me 0% interest so I would never be the slightest bit tempted to think that this account is an "earnings account." Why, because whether it is making .01% or 2%, the purpose of the account is to park money there if I need it in a hurry, and absolutely nothing else. I made the most money in 2018 by putting income money into accounts. This is a 5 digit number. I made the second most money that year from investment interest. This is also a 5 digit number. I made the third most money on interest from my savings account. This is a one digit number. Oh, wait, if had I one of those slick online savings accounts with a 2% rate of return, I could have splurged at Cracker Barrel. My loss.

Online banks have some advantages, but the 2% rate of return is a gimmick to lure in customers to misusing the account for something other than savings. 0% is better than 2%, not mathematically, but behaviorally, because I won't get the illusion that my savings account is some kind of investment.

Yep definitely hate this Dave Ramsey stuff, how can you possibly misuse a savings account?

Case in point, I paid my wife’s way through medschool. Tuition was due twice a year so I put the money in high APY account until it was due at the beginning of the semester. Tuition was 20k a semester and obvioiusly I couldn’t invest the money as no level of risk was acceptable. So each year at 2.5% I made $750, ((40,000*.025)/2)+ ((20,000*.025)/2)=$750

I prefer an elk tag over a trip to crate and barrel, but that’s just me.

I’m sure you aren’t going to go bankrupt following Ramsey, and post ‘08 there were probably a lot of stupid boomers who he helped by slapping the cookies out of their fat little fingers, but his methods leave a lot of money on the table.

I prefer to learn how the system works and make it work for me, this guy seems to say f-it I’m just not going to be a part of the system.

 

[----]

Savings accounts are for procrastinators. Live it up and spend it while you're upright.

 

[Pucky Freak]

how can you possibly misuse a savings account?

I have seen far more people do this than defies all reason

I prefer to learn how the system works and make it work for me

I can respect that. If A high-yield savings account is part of your formula that works, all the power to you.

I will refer to the original post, which was a question of: Wife thinks savings is primarily accomplished by depositing money in savings; is she right or wrong? Nearly everyone working for an income can accomplish more by adding money to an account vs. seeing the account grow by a small interest rate. The #1 reason people don't have money as the decades roll by is...wait for it...they didn't sock any away.

 

[Steiny]

Another option you can probably do at your local bank is set up a CD ladder.
Depending upon the duration of CD's you buy, one will always be coming up and available soon, so you can get your money without penalty if needed.

 

[Deleted member 28227]

I have seen far more people do this than defies all reason


I can respect that. If A high-yield savings account is part of your formula that works, all the power to you.

I will refer to the original post, which was a question of: Wife thinks savings is primarily accomplished by depositing money in savings; is she right or wrong? Nearly everyone working for an income can accomplish more by adding money to an account vs. seeing the account grow by a small interest rate. The #1 reason people don't have money as the decades roll by is...wait for it...they didn't sock any away.

So the argument then is that by having a 2.25% or whatever interest rate over a .01% interest rate then you wont save money because you will think you don't need to because of the all the interest you are generating.

Lol, ok so from now on nobody should get a sight for their bow or because if you do it will make you think you don't need to ever practice shooting.

ElkFever2, I realize I'm giving you a huuuuge amount of crap... sorry being being a sass-hole...

To OP's question directly:

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.

Both ElkFever2 and I agree with your wife, this is exactly what a savings account is for, I have direct deposit set up on mine so that money goes in their straight out of my pay check so that I don't even consider that portion of my check each month "up for grabs." Some online savings accounts like Barclay's actually give you and increased interest rate for setting up direct deposit.

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.

Here is where ElkFever2 and I somewhat disagree. With modern banking I see no difference in having a savings account at a different institution than your checking. You can do pretty much instantaneous transfers via the web, once you link accounts, so in practicality it works the exact same way as having both accounts at the same bank. Depending on your particular situation you may or may not have much cash in your savings, so the felt differences might be small.
I am with you on this one though, no matter how little money I'm actually accruing via interest I have a hard time rationalizing not taking advantage of a savings account that has an APY 220% larger than the one my institution offers.

Am i wrong in my thinking?
I think you are both right, just with different execution strategies.

 

[Grundy53]

I have seen far more people do this than defies all reason


I can respect that. If A high-yield savings account is part of your formula that works, all the power to you.

I will refer to the original post, which was a question of: Wife thinks savings is primarily accomplished by depositing money in savings; is she right or wrong? Nearly everyone working for an income can accomplish more by adding money to an account vs. seeing the account grow by a small interest rate. The #1 reason people don't have money as the decades roll by is...wait for it...they didn't sock any away.

If you are going to save the same amount of money either way why wouldn't you pick the account with higher interest? Yes, the only way you will save a significant amount of money is to keep depositing money from your income. However why leave money on the table? Pennies add up to dollars.

 

[VikingsGuy]

I agree with wllm1313 in general. I think an important part of this discussion is “why am I saving this money?” Different answers to this question lead you to different recommendations, and to some extent some of the variety of responses to this post may be attributed to folks assuming OP’s answer. In a gross overgenerality, I believe each household needs 4 pools of funds.

The first pool is immediately available cash for emergencies - is that $$500, 1,000 or $5,000 or something else, really depends on your life situation. The car breaks down, you get an unexpected high heating bill, you get an unexpected dental expense, etc. I wouldn’t worry about inflation or interest on this account - simplicity of access and certainly that it will not be lost (market drop or bank failure, etc) are the key drivers. FDIC insured accounts are great for this, some even use cash in a home safe.

The second pool is your big emergency fund for loss of job, severe illness that limits ability to work etc. A general rule of thumb I like is 6 times your monthly “burn rate”. Immediate access is less critical as you will have time to get to it, but you don’t want the value to be highly variable (e.g., stocks) because you can’t control the timing of when you access it - you may not just be able to ride through a market dip. At the same time this is a pool you hope you never use so it could sit there for many many years - at this point inflation is an issue. A 6 month pool amount from 10 years ago at 0.01% interest is probably only 4.5 months of savings in today’s spending power. Things like CD ladders, TIP ladders, some money market funds can be fairly safe/stable while still allowing you to remain inflation neutral.

The third pool is the “retirement” or “wealth” pool. This pool is driven by how much you save and how smart you invest - stocks will be a apart of this more so than merely interest. Maxing out your 401k match, saving a little more each month, direct savings deposits, etc are all good habits here. These need to grow over many years/decades. They are best in a low load fund like vanguard and need to match your risk appetite and age (as the older you get, the less time you have to ride out a market dip). vanguard and others even have age related funds that manage that risk shift for you. But no matter how you manage it, this is where you need to keep putting more in and use the growth potential of stocks (age weighted as mentioned) — interest at 0.01% or 2.0% isn’t going to get it done over this time horizon.

The fourth pool is the “big planned event” pool. Going to take a trip to europe, new vehicle, kids in college, etc - plan for how much you need and when you need it -make sure this is additional funds that are saved and don’t reduce the funds in (or going into) the 3 pools above. Depending on time horizon of each targeted expenditure, this ends up being managed by a blended logic of the first three pools.

Households that manage these four well will be in good shape through life’s (and the economy’s) up and downs.

UPDATED: One last thought. IMHO, disciplined savers build/replenish these account balances in 1, 2, 3, 4 order. The average person tends to go 4, 1, 3, 2 - funding the "nice to have" before the others and rarely having the 6 month back up even if they are saving for retirement. It's not easy, and I can't say I have done it all correctly over the years, but definitely if I knew then what I know now I would have made very different choices in my 20's and early 30's.

 

[Deleted member 28227]

^ Couldn't have said it better.

 

[npaden]

Bitcoin!

 

[Walkathon]

I use an online savings account and it pays something like 2.20% APY. I'll take the 2% over what Wells Fargo pays me for savings, which is basically nothing. My 2 cents.

 

[VikingsGuy]

I use an online savings account and it pays something like 2.20% APY. I'll take the 2% over what Wells Fargo pays me for savings, which is basically nothing. My 2 cents.

Curious, is it FDIC insured?

 

[Deleted member 28227]

Curious, is it FDIC insured?

Barclay, Capital One 360, Ally, etc are all FDIC insured up to 250k per person on the account, i.e. if you really just wanted to have all your money in an account you could open a joint account with your spouse and then list 2 kids as beneficiaries and it would be insured up to 1 million.

I did a deep dive on this while the simultaneously the executor of my grandmothers and father's respective estates. I had to park a bunch of life insurance, real estate sales profits, etc. money for a while because things got complicated.

 

[cusecat04]

Agreed these are not fly by night accounts.

To the OP... you are not incorrect in your thought process. Maybe the disconnect is in an all or nothing proposition. You mention asking your wife to transfer it into one of these accounts. Do the leg work, set it up, transfer a smal amount let it sit there for a full month, see the difference. Maybe she would feel safer having a portion at the local bank she can walk into and withdraw when needed. Diversification can be beneficial in this case if it helps everyone sleep at night. Your online account can take a few days to clear a transfer.

I can say I’ve been utilizing an online account to get the larger gains on my emergency fund/ earmarked savings for projects since 2005. It’s not going to make you a millionaire... but cents turn into dollars, similar to ounces turn into pounds.

 

[Walkathon]

Curious, is it FDIC insured?

Yes "Member FDIC" I wouldn't use them if they weren't FDIC insured I don't have near $250K in it so I'm safe, really safe.....also as mentioned above, it takes about 3 business days for a transfer to clear to, or from my WF account to the online account so I still keep some in a WF savings account as well. I double checked the rate and it's 2.10% apy.

 

[VikingsGuy]

Glad to hear folks are confirming FDIC. For additional clarity, even FDIC member banks (bricks & mortar or online) have insured account types and uninsured account types - always good to confirm the details when trying something new.

 

[BigHornRam]

I just have a problem with giving banks and credit unions basically free use of my money. If enough people are willing to give them free use of their money then they don't have to change their ways.

My bank works for me, I don't work for the bank. If they won't work for me, time to find a new one.