When it comes to personal savings accounts, most of us default to our putting our extra cash in a segregated bank account (a savings account). What you may or may not know is that the bank then uses YOUR money to make THEM even more money. That’s right; all those dollars you wisely stash away every month earn you next to nothing but generate massive returns for the bank!
I won’t go in to depth in this article about the entire banking process, but banks traditionally earn 4+% on every deposit you make and pay you .5%-1% in return. It doesn’t take a Harvard Business degree to recognize that the banks are benefiting much more than you are.
However, what if I told you there are easy (and smart) options available that could earn you up to 200x the interest rate you’re currently getting? Enter the world of high interest online savings accounts.
The genius theory behind these accounts is to remove the brick-and-mortar aspect of typical banking in order to offer the customer (you) a higher rate of return on your money. Now, these banks will still lend your money out at higher interest rates than they return to you, but you can earn upwards of 2% interest. When you consider that the average annual rate of inflation over the last 100 years is right at 3%, this type of savings account will help you bridge most of that gap on an annual basis.
Sifting Through the Options
Just like opening a checking account, typical savings account, or even a credit card, there are pros and cons to each of the options available to you. You will want to consider things such as the minimum deposit requirements, banking fees, and the all-important APY.
- Minimum Deposit Requirements: Some of the options available to you will have restrictions on the minimum amount of money you must deposit initially in order to open the account, as well as minimum monthly contributions that you will have to make.
- Fees: Be sure to do your research on the fees associated with each account you consider. Some accounts have one time, monthly, or situational fees that are enforced. You do not want to burden yourself with too many unnecessary fees.
- APY: Annual percentage yield is the interest rate of return on your money. Your main goal should be to get the highest APY you can to optimize our money.
- FDIC Insured: Federal Deposit Insurance Corporation is the entity that backs the money you deposit into the accounts. It is critical to ensure the account you select is backed by the FDIC (typical accounts are backed up to $250,000).
As you can see, there are a lot of things to consider when selecting one of these accounts. The good news is we’ve done most of the heavy research for you! After analyzing dozens of high interest savings account options, here are our top picks:
Long Term View
So, now you know the options and rates available to you. Admittedly, these aren’t the sexiest interest rates out there, but it’s all about getting ahead wherever you can. These accounts offer you a better way to grow your capital compared to the traditional savings method that most people utilize today.
To make the numbers easy to understand, here’s a look at how everything looks in the long-term scheme of your financial life, using an initial deposit of $5,000 and standard monthly contributions of $100:
|Time||0.01% APY||2.1% APY||2.3% APY|
If you start young, you could save an additional $37,501.30 over the course of 40 years of saving without depositing any more capital! That’s equivalent to treating yourself to a brand new nice car, paid in full, simply by making a minor switch to your savings account.
In summary, don’t procrastinate on making this quick and easy change. Review the options, find one that fits your personal financial situation, and get started today!