Today's tip is part of our Fiscal Fitness '09 series. Every weekday this month, you'll get help getting fiscally fit as we work toward our goal of saving $2,000 to invest in 3 stocks!
"Double Your Money in 347 Years!" sounds like a joke of a marketing hook -- the type of humor that gets a belly laugh from financial types in a "funny because it's true" kind of way.
Just look at the going rates on savings accounts at some of the biggest banks out there. Motley Fool CAPS member investmentguru30 was understandably nonplussed and posted what he found out about the low-interest savings accounts out there. It's hard to get excited about the low interest rates that you'll find on vanilla savings options at JPMorgan Chase (NYSE: JPM ) , Wells Fargo (NYSE: WFC ) , and US Bancorp (NYSE: USB ) .
According to investmentguru30's research, Bank of America (NYSE: BAC ) clocked in with a 0.2% rate -- the best out of the rates he looked at.
Patience, grasshopper. You're going to need it. At 0.2% interest, it will take 347 years before your money doubles. But watch out -- don't dare let your balance drop below the required account minimum or make a fourth withdrawal during the month (you're only allowed three for free). Make one fee-generating move, and you could wipe out a year's worth of interest -- a whopping $2 on a $1,000 balance after one year -- in a single moment.
Desperate times, desperate deals
So now we know where you're not going to get much moolah for your money. Let's find some alternative parking spots for your short-term savings.
Currently bank savings/money market accounts (sometimes called "high-yield savings accounts") sport higher interest rates than money market mutual funds and Treasury bills. Which institutions offer the best deals? It's time for another "funny because it's true" insider-y joke:
A guy goes into a bar and asks, "Where can I earn the highest interest rate on my savings?"
The bartender answers, "At whichever bank is about to fail."
If you shopped interest rates every day, you'd notice that the banks touting eye-catching deals tend to be the same ones getting bad press about their business. Remember the line of customers out the door when WaMu went under? That's exactly what other financial institutions want to avoid.
So to attract customer deposits, they dangle door-buster deals -- mainly on certificates of deposit, which, theoretically, lock in a depositor's money and discourage sudden massive withdrawals. (Most CDs do allow early withdrawals, but you'll pay a penalty -- such as forfeiting the interest you earned.)
Where to super-size your short-term savings
Rates change daily -- unfortunately for savers, the direction that rates appear to be heading is down. Still, deals can be had, depending on whether you can qualify for the minimum account requirement and how long you're willing to have your cash locked up.
For instance, you can find several banks paying 2.5% or more on one-year CDs, including the Discover Bank division of Discover Financial Services (NYSE: DFS ) and ING's (NYSE: ING ) online-based ING Direct. Flagstar Bank pays an APR of 3.25%.
It pays to shop rates at credit unions, as well. According to the National Association of Federal Credit Union's daily rate finder, credit unions pay, on average, 74 more basis points than regular banks on a one-year CD. (If you're not a member already, you might be surprised at how easy it is to qualify for membership. Use CULookup.com to find a credit union near you or based on membership type.)
Kiplinger's magazine recently picked their favorite options for high-yield checking accounts, which were Flagstar Bank's online money market, Schwab's (Nasdaq: SCHW ) high-yield investor checking account, and FNBO Direct's savings account. (Be sure to check out Bankrate.com's "Safe & Sound ratings" before doing business with an unfamiliar institution.)
Here's $305 just to move your money
What's it worth to move your cash from a low-yield checking account into something that pays a bit better? Say you've got $10,000 in your emergency fund. At 0.2%, you'll earn $20 in interest over the course of a year. Move it into a one-year CD paying 3.25%, and you'll earn $325 -- or $305 more for a bit of administrative hassle.
Finally, in your pursuit of high yields, don't dismiss the presence of risk. Dividend-paying stocks, for example, are not a substitute for cash on hand. And remember to double-check that the bank has FDIC insurance.
More ways to save ...
- Find the right fit for your money: Surcharges, maintenance fees, courtesy services, setup costs -- what banks charge consumers these days gives new meaning to the phrase "bank heist." Often it's the customers' own sloppy accounting of those fees that can drain as much as $100 a month from your account. Here are eight ways to help you slash your monthly bank tab.
- Get cheap prescription specs: All this poking around the web for bargains can do a number on your eyes. When it's time to buy new glasses, you can save a bundle by buying them online. The $8-a-pair glasses ($12.95 with shipping) from zennioptical.com are ideal for those who would like a few pairs stationed strategically around the house. For the try-on-before-you-buy crowd, 39DollarGlasses.com lets you print out paper frames, and FramesDirect.com can superimpose its inventory on a photo you upload.
Want a whole year's worth of money-toning, net-worth-strengthening advice? Check out Rule Your Retirement, where 2009 is the Year of Fiscal Fitness. Do everything you can now to create the best retirement plan possible.
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