How to Give Your Checking Accounts an Extra Boost
June 23, 2014When was the last time that you talked to somebody that was excited about the interest rate on their checking, savings, or money market account? Most people really don’t get worked up into a frenzy talking about personal finances and it’s especially rare to hear people excited about the interest rates banks are paying these days. Unless you have completely avoided paying attention to your personal finances over the past few years, it is no secret that interest rates are extremely low right now. When I say really low, I really mean practically nonexistent. While this is excellent for most borrowers, it doesn’t really provide us with a great deal of incentive to shop around for more competitive interest rates when parking our money at financial institutions.
Our family has been with the same old large financial institution that I used during high school after decades of bank buyouts and mergers. I still remember when I actually had an old passbook savings account that I diligently used to record my savings deposits from those first jobs mowing lawns and bagging groceries. I also remember the frustration of trying to balance a checkbook even in my youth when life was simpler and the bills weren’t quite as large and scary if they ever went unpaid. Like most Americans, I don’t even bother trying to balance a checkbook anymore because I rely on online banking to pay bills, check account balances, and monitor transactions.
One thing that is extremely frustrating these days is taking a glance at the interest earned column in my checking and savings account. Is it really even worth having a savings account when the annual percentage yield is a whopping 0.01%? A review of my savings account revealed that was my actual rate. Just a few years ago, it was earning a more respectable 3.00% APY but the “times they are a changin’” (sorry had to sneak some Dylan in there). Recently, my wife and I decided to take action and quit letting inertia and procrastination steal away extra dollars from our bank accounts. Here are some of the steps we took that you can use to give your bank accounts a much needed boost:
Consider high yield checking accounts. Believe it or not, there are still some high yield checking accounts out there. The hard part is finding them. Then once you have found them, it is important to pay attention to special rules you must follow to qualify for the most competitive interest rates. For example, some high yield checking accounts require you to sign up for direct deposit or make 10-12 debit card transactions each month. Sites such as DepositAccounts, NerdWallet, MoneyRates, and Bankrate provide some comparison shopping among local and national banks. From talking with people across the country, you can often find very competitive interest rates by contacting local credit unions or community banks.
Shop around for online saving accounts. If you are keeping too much money in your day-to-day checking account, you can consider shifting any excess amounts needed to cover short-term bills and expenses to a savings account. The same concept used to comparison shop checking accounts applies for saving accounts. Online banks often offer the best deal since it costs a lot less to operate a bank that doesn’t have the brick and mortar expenses of having branches on every major intersection. Just remember that once you’ve found the interest rate you’ve been searching for, the most important thing you can do is automate your savings and avoid the urge to raid your savings for anything other than an emergency or the actual savings goal. That’s why emergency funds and savings accounts set up for short-term goals like vacations or a down payment on a new home should always be separate from your day to day checking.
Recently, I’ve discovered an interest savings account called SmartyPig that offers a competitive interest rate and also provides a bonus if you use the savings to obtain gift cards from various retailers. This is an excellent way to save more money on things you were going to spend money on anyway. The big difference is this approach encourages a “planned spending account” approach.
For example, my wife and I frequently use Amazon to purchase a wide variety of items. SmartyPig currently offers a 3% bonus if we use our savings to purchase an Amazon gift card. So our 1% savings rate just got a 3% bonus to purchase items we planned on spending money on anyway.
Spend money to make money. If you have the discipline to use a credit card and always pay your balances off in full, you can actually generate money in the form of cash back rewards. In fact, credit card spending can be coordinated with your personal spending plan using account aggregation sites such as Mint or Personal Capital. The thing to remember with cash back credit cards is that you generally want to look for no annual fee cards and you must pay attention to how rewards are paid out (cash back, points, etc.).
It would be irresponsible of me not to point out that there are many inherent problems with this strategy. First, most people don’t have the discipline to use credit cards with this approach. If you have a love/hate relationship with the plastic or have routinely paid off credit card balances only to see them reappear, then you may end up costing yourself money in the long run. It’s also a possibility that you may end up spending more money with a credit card than you would have with a cash purchase.
Finding extra money in the budget often has a bigger impact on your balance. The easiest strategy to give your checking account a boost is to create and follow a personal spending plan that empowers you to spend with a plan. An effective spending plan will also help you free up more money to pay down high interest debt and build up savings. Just consider the fact that a $10,000 account balance with a 1% yield will earn $100 in interest. If you can find just $10 extra per month to increase your savings, you’ve more than doubled your balance. This daily savings calculator helps demonstrate how small daily savings amounts can prove to be a significant wealth builder. This doesn’t mean you should avoid trying to find the most competitive interest rates out there. It just helps to put things in perspective because at the end of the day, reaching our most important financial life goals is the ultimate objective.
These are just a few ideas to consider. What are some strategies that you are using to give your checking accounts a boost? Leave your thoughts in the comments section below.