When it comes to personal savings accounts, most of us default to our standard big bank offerings. What you may, or may not, know is that banks use YOUR money to make THEM even more money. That’s right; all those dollars you wisely stash away every month are earning you next to nothing, but earn the big banks big money! What happens is these big banks take the money you have stowed in your account and they loan it out at a high interest rate to other borrowers. To compensate you for letting them use your money to make them money, they offer you a nominal interest rate back to you. These rates can be as low as a measly 0.01%!
Now, what if I told you there were easy (and smart) options available to you that could 200x this interest rate for you? Enter the world of high interest online savings accounts. The genius theory behind these accounts was to remove the brick-and-mortar aspect of typical banking in order to offer the customer (you) a higher interest rate 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 on your money. 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 the variety of options available to you. You will want to consider things such as the minimum deposit requirements, fees, as well as the all-important APY. As with any other financial vehicle, you will want to find the option that best optimizes your money.
- Minimum Deposit Requirements: Some of the options you will encounter will have restrictions on the minimum amount of money you can deposit to open, as well as minimum monthly contributions. Minimum to open an account is simply the minimum amount your initial deposit must be in order to be approved for this account. This is a one-time minimum requirement. Monthly minimums are simply the minimum amounts you must deposit each month to earn the full interest rate of the specified account.
- Fees: Be sure to do your research on the fees associated with each account you consider. Some accounts you will come across have one time, monthly, or situational fees that are enforced. You do not want to burden yourself will too many unnecessary fees.
- APY: Annual percentage yield is the interest rate of return on your money. Our main goal is to get the highest APY we 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 the heavy research has been done for you! The top recommended accounts are outlined below to simplify the options available to you.
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 alternative to help get ahead compared to what you are most likely using today. Here’s a look at how this looks in the long-term scheme of your financial life, using an initial deposit of $5,000 and standard monthly contributions of $100:
If you start young, you could save an additional $37,501.30 over the course of 40 years of saving! That’s equivalent to treating yourself to a brand new nice car, paid in full, simply by switching something as simple as your savings account!
In summary, don’t procrastinate making this quick and easy change. Review the options, find one that fits your personal financial situation, and start today!