Money in the Bank

We have talked a lot about getting out of debt. Now let’s turn our attention to what to do when you’re free from the chains of owing. We are talking about investing your money so that it grows. The safest thing to do with your money is to simply put it in the bank, a savings account that collects interest. On the pro side, money in the bank is protected by the federal government. That means your savings account at the bank is insured up to $250K even if the bank goes under. There’s no risk of losing your money no matter what happens to the economy. And your money is fluid, meaning that it isn’t tied up for long periods of time. You can deposit or take out money without penalties.

Remember we discussed socking away 3-6 months of expenses into an emergency fund? A savings account is a good place to park that money because it’s safe and accessible. A savings account isn’t paying a lot of interest, but that’s okay. You want your emergency fund to be safe, not to make you a ton of money when the stock market goes up.

There are different types of accounts you can open at the bank and most of them are insured by the federal government. Here are some of these accounts and what they do:

·         Savings Account

·         Checking Account

·         Money Market Account

·         Certificate of Deposit

What about savings accounts at online banks? If you go into a brick and mortar bank such as Bank of America or Chase, your savings account would pay you .01 percent interest at the time I’m writing this article. That’s not a lot. If you deposited $1000 (minimum to have in your emergency fund) into your savings account at the beginning of the year, at a .01 percent interest rate, you would have a whopping ten cents of interest at the end of the year!

However, if you put that same $1000 into a savings account at an online bank such as Goldman Sachs (also federally insured and the online bank I use), which pays 1.30 percent interest, you would have $13.08 cents of interest at the end of the year. You would not have a brick and mortar store to walk into but if you are comfortable doing all your banking online, your rate of return is a lot better. How do you make deposits and withdrawals when there’s no building to walk into? I connect my online savings accounts at Goldman Sachs with my brick and mortar checking account at a local credit union and move money back and forth that way. I still have the convenience of going to a physical building and I can move money back and forth online between these accounts. It takes a few business days of processing time between the credit union and the online accounts, but that’s not a problem for me.

Again, we’re not talking about making a killing at the stock market with these savings rates. The goal with an emergency fund savings is to keep the money fluid and accessible and earn a little interest at the same time. We will be discussing other investment vehicles that can bring greater returns in future posts.