Financial Planning Blog

With the miserably low interest rates offered on savings, money market accounts, and CDs these days, it seems it just doesn't pay to be a diligent saver. Of course, it does pay great dividends--in peace of mind and the security of knowing you're doing your best to prepare for whatever the future holds. Even though you may be tempted to take more risk for higher returns (many of us apparently have short memories), there is great value in the safety and stability of FDIC insured accounts for money you may need over the next few years. However, what are your options in maximizing the interest on your emergency and other short term savings?

Over the past several years a plethora of banks have been offering on-line savings accounts, CDs, and even checking accounts at much more favorable rates than traditional banks and credit unions. Although you give up the option of walking into the bank and talking to someone in person, you generally get much higher rates of interest--not to mention the convenience of banking in your boxers. The general model is that our traditional checking account is electronically linked to your on-line savings account, and you can move money in either direction at anytime, or automatically at set times during the month. It is easy, safe, and I can't believe I lived without it for so many years. And, although rates are still low today, you can still find rates that are significantly higher than your local bank or CU.

A decent overview of internet banks and what to look for can be found here. If you are looking for where the best rates are and reviews on banks, check out bankdeals.blogspot.com, which is a great resource--if you can find your way around the site. You can also check bankrate.com.

There are so many banks to choose from, it can be a little intimidating. I use ING Direct, and although they are no longer the leader in terms of interest rates, I have always been impressed by their straight forward terms, ease-of-use, and service. Other big names include HSBC Direct, and Emigrant Direct, and now Ally Bank, which has morphed out of GMAC Bank. GMAC Bank essentially rebranded itself as Ally Bank and is in the midst of a big marketing blitz. They came out of the gates offering interest rates much higher than anyone else, causing the American Bankers Association to complain to the FDIC about unfair competition. Whether this lobbying was the cause is uncertain, but Ally's rates have come down significantly over the last several weeks--although they are very competitive.

High yield checking accounts

A relatively new option when searching out higher interest rates are high yield checking accounts. These accounts are generally offered by smaller local banks and credit unions, although a number are offered nationwide. Generally the accounts have above market yields (3% to 5% in mid July), but there a number of hoops you need to jump through to qualify. First, you usually have to have at least one monthly direct deposit or other ACH (automatic check handling) transfer. You also need to make a certain number of debit card transactions per month--normally around ten. And, although you generally don't have a minimum balance requirement, there is a maximum balance (usually $25,000) that the bank will pay the higher rate on. You may also need to accept electronic statement instead of paper. If these requirements fit into how you use your checking account, it is definitely worth looking into. Check out offerings in your local area, along with banks offering these accounts nationwide. At Kasasa.com you can find institutions which offer these high yield accounts in your area, with a few twists, such as very competitive saving accounts to go along with the checking accounts. 

It may seem like a lot of work to shop around and move your savings from its current home. Even though you may more than triple the interest you are earning--1.5%, 2%, or even 5% may not seem worth it. However, as interest rates rise (and they eventually will) the reward for placing your money in a more competitive bank will likely be even greater. Over the long haul, being smart about these small things will pay off. As Benjamin Franklin said, "A small leak can sink a great ship." Don't let the small leak of uncompetitive savings rates sink your ship.