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I need a savings account
minirhyder
BerlinRegistered User regular
BerlinRegistered User regular
Hello financially savvy fellas!
I need to find a savings account to put my money into. I'd like this to be "backup" money that I can rely on in case of everything going wrong ever, thus this money will be hopefully untouched for a while. Right now it's all sitting in my checking account which is dumb. I'd like it to accrue me some interest while it's laying around being backup money.
Problem is, I'm not even sure where to start looking for a good interest rate. I'm totally open to online banks. I've looked at some, but I don't even know the range of interest rates and what's considered a good deal.
Halp?
I need to find a savings account to put my money into. I'd like this to be "backup" money that I can rely on in case of everything going wrong ever, thus this money will be hopefully untouched for a while. Right now it's all sitting in my checking account which is dumb. I'd like it to accrue me some interest while it's laying around being backup money.
Problem is, I'm not even sure where to start looking for a good interest rate. I'm totally open to online banks. I've looked at some, but I don't even know the range of interest rates and what's considered a good deal.
Halp?
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Since I have a credit card with american express, they recently advertised a new savings account product of theirs that I has a 0.85% APY if I recall correctly. I'm not financially savvy enough to appreciate this properly, but I do know it's significantly higher than the savings account I have through my bank.
e- Kamiro's advice is pretty spot on.
I realize that interest rates are stupid low, but this is money that right now is at 0% interest, so 0.005% interest is better than the current situation, as shitty as it is.
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e- who do you have your checking account through? Does this bank offer a savings account you can use? Honestly if it's an option just open one through where you have your checking account to allow for more streamlined transfers
It's really not, since inflation will eat away the value of that money a lot faster.
Do something pretty chill that has a chance to make money and can be moved reasonably fast if you need it. This is what I started doing instead of a savings account and it's working well.
Let 'em eat fucking pineapples!
1) Do NOT live month to month. You should have enough money to cover somewhere between 1-2 months worth of expenses in your checking account at any time. Right after you get paid it will probably be closer to 2 months. Right after you pay your rent it's probably closer to 1 month. But at no time should it be getting close to 0. This money needs to be very liquid and is a small enough amount that putting it anywhere else then your checking account is more pain than it's worth.
2) Emergency fund. The advice on this goes back and forth so you're going to have to make some executive decisions.
On the very conservative side, the typical advice is to have around 6 months worth of expenses in a savings account at the same bank as your checking account. This will allow for immediate transfers, will be enough money to cover pretty much any emergency, and the reality is that it doesn't matter if your bank has a slightly lower yield savings account because pretty much all savings accounts have yields far less than inflation.
The opposite side says you should have 3ish months worth of savings and you should just dump it into a brokerage account where you can invest it into index funds or some other investment vehicle. This gives you the highest yields but you will have to deal with delays and fees that may or may not negate the higher yields. Not to mention if the market goes south quickly you will lose your emergency fund.
Personally I'm somewhere in the middle in that I would probably keep a lower amount of money (3 months worth), but I would just keep it in a savings account. If that is the entirety of your savings you don't really have enough to start worrying about what your yields on your savings are. You're better off focusing on getting a higher income or lowering your spending until you can build up a larger savings.
3) Investing. After you have taken care of the above 2 items and you have additional income left over, this is where you can really start getting into investing. I don't have a lot to say here because I don't really know anything about investing, but you should at least be maxing out any tax deductible benefits like employer sponsored retirement plans.
Having said all that it looks like you are doing the right thing so far and so for the original question I would say just stick it in whatever bank you have your checking account. The difference in interest rates will be very small among different savings accounts, and in my opinion not worth sacrificing the convenience of instantaneous transfers. I would open up a savings account though because within the same bank there is no downside and any money you get is free money.
edit- As a special bonus, if you find a higher interest rate savings account that catches your fancy, don't be afraid to dump your old bank all together and open up a checking and savings account at a new bank. Thus giving you the benefit of a higher yield savings account without sacrificing the ability for instantaneous transfers between accounts. Just be sure to read the fine print on associated fees because in my experience that's how high yield accounts get you is that they have ridiculous requirements that mean most people pay fees every month or year that offsets the higher gains. Things like minimum number of debit purchases, minimum account balances, mandatory direct deposits, minimum number of automatic payments, ect... I've seen requirements for all these things and usually failure to meet any one of them results in an account maintenance fee.
No, investing is risky.
Stop that shit.
Open a savings account, move a safety net into there. Low yield? Sure. But you gain liquidity. People will argue until they're blue in the face that you can use all these broker accounts like checkbooks, but you can't, it'll bite you in the ass if you need the money right now. Inflation is a thing, for sure, but we're talking a percent or so a year. Your money isn't going to significantly devalue over the course of 5 years where it's a worry, and the $50 or so in interest will keep you reasonably close to your starting values. People typically start savings account to pay for things like... new transmission, oh no my brakes went, shit like that. So, having it be liquid within a day is important and the inherent risks (and there are some, don't pee on my leg and tell me it's raining, pals) for having it in a mutual fund isn't really that important so you can make an extra $50 a year.
Grab something like ally or capitalone360 because they offer pretty high savings interest for lower end deposit values.
Then build up 3-6 months worth of living expenses, then start investing anything over the top of that. That's what you do, that's the non-insane way to build a safety net that isn't flying by the seat of the pants for a few extra bucks a year.
Ask yourself, do you want to gain another few hours of work in interest to offset inflation, or do you want to lose the entirety of your safety net while you're balancing on the tightrope?
There is basically no savings account that gives any interest worth a crap, unless you have literally tens of thousands of dollars.
Retail banks for mere mortals offer something absurd like 0.0001% APR.
If you DO have 20k, then your best bet is to go to a smaller, local bank, who tend to bend over backwards for those kind of accounts.
And if you get that account, that money will be illiquid or at the very best will incur fees if you withdraw it.
The more accessible your savings is, the less money you will make on it.
it's all about how much risk you want to take, and how liquid you want this money. a savings account is a good idea to a point, but once you get to a certain level, you are going to want to start investing the excess. find your safety net amount, and anything above that, maybe open up a Scottrade account and buy some index funds or mutual funds, with whatever level of risk/return you are comfortable with. typically the higher the risk, the higher the potential return. if you've got 20k to play with, there is always the ability to talk to an investment advisor, if you don't want to do the research. personally, i find the financial world interesting, but it is still ostensibly gambling, and i don't trust myself with my own money so i would get a professional to take care of my important funds. maybe if there is excess, i'd give myself some cash to play with.
I'm looking to put in $10K as the safety net. So far, reading all the advice, I'm leaning towards a savings account, because yeah, I need that money to be available immediately if it comes to it, because that's what it's there for to begin with. I'm not looking to invest it, I'm just looking to have it be there if I need it, and also maybe get some tiny interest on it because why not. I want 0% chance of it disappearing for whatever reason.
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Would it have the same effect as having a savings account in the bank you have a checking account in, in that you can move the money around easily?
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The other reason most places tell you 6 month safety net, that isn't really hardly ever discussed a whole lot, is because if you ever lose your job, 6 months of saved income lets you ride out unemployment probably until the recession stops. So even worst case scenario, you're in a good position.
If it were me, I'd opt for whichever one gave the better rates or was the most convenient. Those direct banks that are online like capital one and ally give interest rates on checking accounts. You may prefer local banks to internet ones to speak to people, for instance. It's all about what you want.
Getting money into your credit card is easy no matter what, assuming they have online bill pay. The bank shouldn't matter there at all when dealing with them.
If you are looking at money market funds, be aware that those are not federally insured like bank deposits (FDIC) or credit union deposits (NCUA) are.
I'm wondering about your distinction here. In my mind funding an IRA or 401K is investing. It's not exactly investing since just funding it means you're only earning some fraction of a percent on money market funds, but funding it instead of putting it in the bank means you've essentially trapped it into an account that you cannot access til you're 60+, so not investing those funds would be stupid.
There are immediate benefits to your income from them, versus something like investing in stocks or a mutual fund. That's why they're always recommend to be maxed first, before you move onto other things.
401Ks also come with employer matching, so, that's free money there. Even though they're higher risk than savings, they're still somewhat lower than investing yourself, and come with other added benefits.
Sure yeah, they're "investing" too.
Check your bank savings info. Many banks have some benefits if you have multiple accounts through them, so you might get a slightly better interest rate or something else with your savings account. If there isn't anything like that, than just find the online or local bank with the best interest rate and open an account there.
As long as you don't need any of the things that a physical savings account can get you (i.e. teller access, etc), just take whichever online savings account has the best rates & looks the nicest to you. I have one with capitalone360 (which bought ING direct & integrated them recently), which is ~0.75% right now, I think American Express and Ally may be closer to 0.8%, I think Discover also recently sent me a mail about a savings account that they were starting up that was also equivalent - any of those will be perfectly fine.
This will let you easily transfer money into checking in a pinch. Being able to move $500 into checking while you're in the lobby of the towing company / mechanics shop is priceless, and the difference in interest rates between different banks will never offset that convenience.
One minor note is that you can only make a limited number (3-5?) of online transfers from savings into checking each month. Probably not an issue, it just means you can't put all your money into savings and transfer to checking for each purchase.
The typical advice given on having a cushion is good advice, and the best bet is that once you've built up this cushion, max out your 401k / IRA contributions. Obviously everyone should be contributing the amount your company matches (6% is typical) because otherwise you're passing up employer compensation and basically leaving pay on the table. But, if you have adequate savings and no real expectation of big changes (like six months on contract, two years living off savings), maxing retirement contributions after building up your six month cushion is the best bet. By maxing your 401k / IRA contributions you can realize investment gains and defer income tax on a decent portion of your income.
If you've got your 6 month + cushion and maxed out 401k / IRA contributions and still have money piling up...congrats. Talk to your financial planner / accountant, because you need them at this point and their advice is better than people on the internet who aren't as familiar with your specific needs / goals.
This probably changes bank to bank, but in my experience transferring between banks is a pain. It either takes a long time (like a few days), or they charge you fees. I've banked at US bank, bank of america, key bank, and a local credit union, and to transfer money between any of them it was always faster to just withdraw it myself in cash and then deposit it at the other bank. I highly recommend having your checking account and savings account at the same bank.
I moved my savings into a Discover Bank account a couple years ago, with the same line of thinking. I've liked it a lot, for a couple reasons:
1. Interest rate is fantastic. Much better than the 0.05% my bank offers.
2. The customer service with them has been great. Whenever I call, I'm not on hold long, and it's always directly to a real person. They've always been super nice too.
3. Their online interface is really nice, and the mobile app is good too.
That said, it's not instantly liquid with my checking account. I think the longest a transfer has taken is ~3 days. While I've been reading this thread, I've thinking about the number of times in the past 2-3 years that I've needed more money in my checking account, like, "an hour ago" instantly, and I think it comes out to zero. Of course, I say as someone with a well paying, stable job, but if you have 10k to put into savings I'm assuming you are in the same position. I would definitely recommend Discover's savings account.
Yeah it's going to be about 3-5 days to transfer money. Shouldn't be any fees anymore.
This, right here. I disagree with Bowen on many, many topics but he is so absolutely right on this. If you think he is wrong then consider this: Horrible fucking recessions that result in people who were in no fear of losing their job getting made unemployed and having to spend months unemployed trying to find new employment go hand in fucking hand with the markets tanking. Anyone recommending that you put your emergency funds into a vehicle that could, and has in the past, half in value right when you fucking need it is a goose.
The point of your emergency funds is that they are there, accessible, stable and liquid. They are not a way of making money
EDIT: The timeframe of your emergency fund is tomorrow - that's when you need access to it - not 5 bloody years from now but right fucking now. As a result it needs to be in the lowest risk, most liquid asset class there is, which is cash. There's no fucking way anyone would be advising someone 1 month from retirement that all their money should be in a 40/60 fund so the idea that people are advising that your emergency savings should be in such a fund makes me genuinely angry.
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So given that having my safety net in another bank would take at least a day to transfer money if I'm in a bind, I'm thinking maybe have 2.5K in a savings account in the bank I currently have a checking account in for seamless transfer, and the remaining 7.5K in a savings account with a good interest (one of the ones that were mentioned in this thread). Would that be a good idea?
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common savings accounts are so indifferent to each other in the current economy. you're talking differences of tenths of percents
all having them at the same bank does it makes it easier to access and reduces fees
My thinking is that if shit goes down, I'll have 2.5K immediately, and I can transfer the rest if needed from the higher yield account.
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Sorry, when I log into your website, it's all bundled together. Dealing with the hassle of transferring money between two essentially identical accounts is not worth earning 25 cents a year. Many banks have similar setups, especially national banks, and although credit unions tend to be better on fees, their interest rates are just as crappy.
Any "real" investing will expose you to a new level of fees and risk, and if you move money into a retirement account, it is no longer liquid. You want to avoid that for your basic savings because extracting funds from investments takes a long time and almost always involves brokerage fees. For comparison, I have about 4 months worth of money in my checking account, which MORE than covers emergencies. Then, I have a growing chunk of money in an online savings account that is highly liquid, meaning I can transfer money into it and out of it in about 2-3 days. I then move "extra" money to my retirement accounts for long-term savings, and those funds are then "locked up."
In reality, if you HAVE money, you don't run into a situation where you need the money in an hour. We don't live in TV shows or movies where if you don't produce 10k in an hour someone shoots your family. Any real expense you would know about in advance, and would have a billing period that allowed you to easily transfer money out of an online savings account.
I also dislike the idea of having all of my savings in a single bank for security reasons. If my checking bank is compromised in some way, I don't lose everything because my savings is a different login & password on a different website.
There are a lot of online banks, as linked above. I have had an ING account, now "Capital One 360," for about 8 years. During that time, I have never been in a situation where I needed money "today," and just planned ahead a few days if I needed to transfer money out.
I think the online savings account are very much the way to go for this type of situation. Just keep around 3-months worth of money (rent, regular bills, fun money) in your checking account, and transfer the rest to the Ally/AMEX/Discover/C1-360 account of your choice.
This overall subject has got me so riled that I get a bit ranty in this post, I apologise in advance and I hope my point still comes across - if it doesn't then I would be more than happy to clarify in a future post.
1) Treating your long term investments as a source of emergency money is not what was being recommended by the terrible, terrible article posted by VeritasVR. The article was saying to take the equivalent amount of money that you would put in your emergency savings [*] and instead invest it in a 40/60 mutual fund that you would label as your emergency 'savings'. As I explained above, this is a terrible idea.
2) On your premise of dipping into your overall investment fund to fund emergency expenditure. That's a bad idea too. Investments have either a time frame or a goal (i.e. get to $50,000 dollars to cover deposit on a house, retire at 65 etc). If you take money from your investments then you are taking money from future self to pay for current self's emergency. But the nut fucking kicker is that due to compound interest you are taking lots more money from future self than you are using for current self. AND THAT'S NOT EVEN THE WORST PART. Because life fucking up events go hand in hand with the market tanking you'll be taking money out from your investments at a low point for your investments - so it's like a double compounding event as the recent money you've put in has lost value and it is that you are then pulling out just when you need to leave it in their to recover over the long term - so future you is losing out on even more money.
Investments should not be touched until the investment goal or timeframe has been reached. that's why you have a sort term, liquid buffer, so that your long term financial future is note imperilled.
I'm willing to put in the time to construct the computer simulations to demonstrate how big an effect drawing down your investment income early in case of emergency would have on your future financial wellbeing.
[*] Except to cover for the fact that the market could fucking tank when you needed the money most they actually want you to put in 30% more than you would into your emergency savings. Mother fucking Goose that article makes me angrier and angrier every time I read it.
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Nah. One or two months in an actual savings account, the rest in a low-risk bond fund or something. You will never need your six months of savings next week, so if something does happen, you can live off your savings, and liquidate the fund and get the cash relatively quickly
I wouldn't recommend putting it in the stock market either. Mean reversion is inevitable. Get a 30 year chart on any index and put a ruler on it to see where we will eventually revert to.
Emergency funds should be in a highly liquid account that has zero risk of negative nominal value change. You can get a decent rate on checking if you jump through hoops w/r/to monthly transactions (like kasasa), but in my experience it is more trouble than it is worth.
I didn't really want to get into analysis, but since you got posters advocating putting emergency funds into equity or bond markets I felt some perspective might be of value that is alternate to the chase for returns on "oh shit" money.
Agreed. It's helpful to step back and look at the bigger picture. Savings interest are effectively 0 (which as others have pointed out is ok, since it's emergency money). And chasing a fraction of a percent extra interest is not going to be worth the energy. And even a single slip of not having enough in checking and getting hit with a $35 NSF fee is gonna wipe out years of gains.
I'm sorry if I'm riling you up, it's really not my intent. But I'm going to have to disagree with you. I think what you're saying is, in general, good advice, but if you manage your money carefully there are better options.
I don't know what article you're talking about. If someone suggested that it was OK to have only 3-6 months savings invested, and *no* other savings in liquid form, then yeah that's a bad idea because recession + layoffs = you're fucked. Totally agree with you on that. But if you've got enough to survive a 50% market crash and *still* have enough to live on for 3-6 months, then I think you should just go ahead and invest it.
Yes, you might temporarily lose compound interest by taking it out for an emergency- but that's a whole lot better than *never* getting compound interest on your emergency funds at all, which is what you're suggesting! And yes, you might end up selling some at a bad time, but generally you're still going to be better with the years of growth followed by a crash then you would just leaving it in a savings account the whole time . Or at least put some into highly rated bonds, that yield more than a savings account but can also weather a crash.
example: using http://www.moneychimp.com/features/market_cagr.htm, let's say you bought in 2003 (right after the dot-com/9-11 crash) and sold in December 31, 2008 right after the market crashed again. You'd have a 4.72% return before inflation, which is not exactly *good* but much better than the 0.1% that a savings account gets. And hopefully you wouldn't have to burn through your entire savings anyway. As a bonus, doing it this way you don't have to try and guess how much emergency savings you need, because all your investment money is available in emergencies with no penalty, if you need it.
I guess my bottom line is... yes, investing is risky, but it's also risky to *not* invest because you might end up just not having enough money, especially for retirement.
This is the crux of emergency savings. With Emergency Savings you know exactly how much you've got and when you've got it.
For me, this is a case of "in general"/"in specific". Emergency Savings are insurance against the unexpected. Insurance works on the same principle no matter what the insurance product - in general each individual will pay more in premiums than they will draw on from the insurance product (if the reverse was true then every insurance company ever would go bust) so the "in general" financially logical conclusion is to not have insurance. But in the specifics of having your house burn down, you car totalled or a medical emergency you sure as fuck want that insurance.
You said
That's a bigger buffer but still fundamentally the same approach as the article posted by VeritasVR. It basically means your Emergency Savings are twice as large as what someone who is keeping their savings in cash would be (If Cash Emergency Savings is $18,000 then Investment Emergency Saving is $36,000 to survive a market apocalypse). A 25 year old investing for retirement has 40 years for any immediate drop in his investments to recover, a 25 year old with an emergency tomorrow has 0 years to wait for their investments to recover. So in this situation where someone has twice the amount necessary for a cash emergency fund they would be better off keeping the same amount in cash and investing only the "bonus" money, as demonstrated below:
Alan has $36,000 split $18,000 cash/$18,000 stock market.
Bob has $36,000 all of which is $36,000 stock market.
6 months later comes the financial apocalypse.
Alan now has $27,000 ($18,000 cash, $9,000 stock market)
Bob has $18,000 (all in stock market)
Alan & Bob have an emergency which requires them to spend $12,000.
Alan now has $15,000 ($6000 cash, $9000 stock market)
Bob has $6,000 (all stock market)
Emergency over Alan has not only more available assets but he has more invested in the stock market which means come the recovery he's going to, due to the wonders of compound interest, race away from Bob.
Now you're saying "Alistair that's like he worst case that could possibly happen, hold off of the gloom you big downer". Well, first, it's not the worst that could happen - the worst is that the emergency could require $18,000 or more - In which case Bob is completely wiped out and Alan can still cope (although if it goes above $18,000 he'll have to dig into his investments). Secondly, that's the point - you can't plan for when emergencies happen or how bad they'll be - they just happen and you have to be financially ready for them: the only way you can be ready is if you know what you've got to work with and only cash gives you that assurance.
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Once you have enough money to soak any realistic financial emergency, your emergency fund becomes just another type of asset rather than the separate construct it was earlier. Whether you continue to hold cash depends, then, on your other assets, your risk tolerance, time horizon, etc. This only addresses the risk part of the equation, so we're assuming you have adequate liquidity--and while cash does offer excellent liquidity (duh), it's not the only investment option that does.
Personally, I still use the cash emergency fund + brokerage account structure for my personal finances (well, plus my 401k obviously). I'm not under any illusion that this is optimal, but if it's suboptimal it's suboptimal on the side of low risk, and it's simpler to manage.