Thursday, March 1, 2007

Buck Your Brick Bank For Bang For Your Buck, Part One

I'm willing to bet that the average American has a savings account at their local brick-and-mortar bank or credit union, if they have one at all. If you're one of those people with a savings account, you're on the right track, but I think you can do a lot better. The local brick-and-mortar banks around here are offering the following rates on their basic savings accounts, as of today:

If I had a $5,000 balance in their standard savings account, these are the rates I'd get:

5/3: 0.65%
Chase: 0.40%
Huntington: 0.05%
National City: 0.75%
US Bank: 0.17%

Those rates are absolutely awful. Plus, many of the accounts hit you with "maintenance fees" if you carry a balance less that a certain amount (usually $200-$500). With those dreadfully low rates and fees it's nearly impossible to get ahead!

So what's a guy with some cash to save supposed to do? Fortunately, the internet banks come to the rescue with savings accounts with many of the same benefits of a regular run-of-the-mill savings account, but with an interest rate that actually makes money! Some of the more popular ones are ING Direct, Emigrant Direct, and HSBC. These banks still have the important features, like the fact they're FDIC insured, it's easy to perform transactions, and the customer service is top notch, but they have interest rates ranging from 4.5% to 5.5%. Some even offer sign-up bonuses or even higher introductory rates!

"That's great FNN, but what does that really mean to me? Give me some illustrative numbers!"

Okay, no problem. I'll even use myself as an example.

MLB and I keep an emergency fund of cash equivalent to five to six months of living expenses in a savings account. Since we want to have easy access to the money (in case of emergency), we don't want to put the money into a brokerage account, IRA, or other investment. We want a genuine savings account. So, say we trudge on down to our bank, Huntington, and sign up for a "Premier Savings Account" with their interest rate of 0.05% and deposit our money.

At the end of a first month with our "Premier Savings Account", we've earned a whopping $0.63. That's right, sixty-three cents. At the end of a whole year, our balance is $7.50 higher than when we started. Seven dollars and fifty cents. For the whole year. Whoopity-doo.

Okay, say instead of going to our local Huntington, we decided to sign up with ING Direct (which we did) and transfer the money from our checking account. We get their standard "Orange Savings Account", and get a rate of 4.5%. At the end of the first month, we earn $56.25 in interest. Yes, you read correctly. $56.25 in one month. That's over seven times more than the Huntington account made all year! After one full year in the ING account, our balance is almost $700 higher!

"Wow, FNN, that's a lot of money!"

Darn tootin'.

"Okay, I'm interested. So what are the drawbacks?"

Well, there's a handful, but they're pretty minor. First, there is no brick-and-mortar building to go to make deposits. You have to make deposits to your regular checking account and then transfer the money to your internet account. Second, it usually takes 2-3 business days to make the transfer back and forth between the accounts and our Huntington checking accounts. However, this can be a positive. Because it takes a few days, it forces me to think a little harder about the reasoning behind the transfer. Since it's a savings account, the money should be staying in there unless I've got a really good reason.

"Are there any other benefits?"

Absolutely, and they're big ones to me and MLB. But, it's a long topic, so I'll go into more depth tomorrow. In the mean time, check out what ING Direct, HSBC, and Emigrant Direct have to offer.


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