Category Archives: Saving Money

Don’t Go Chasing Waterfalls…er, I Mean Interest Rates

Banks offer a wide range of interest rates on savings accounts, from .10% all the way up to 1.05%.  Our savings accounts are currently with Capital One where we enjoy a .75% interest rate.  According to Nerd Wallet , we could up our rate by a whopping .30% if we simply move our accounts over to one of those higher paying banks.  This sounds good on the surface.  After all, it’s free money, right?  But, is the higher rate really worth changing banks?

Change is Hard

Think for a moment about what steps you would need to take to move your money to a different bank.

1. Fill out the paperwork

It’s not as bad as the paperwork at the doctor’s office, but it’s still pretty painful.  The new bank might need 4-5 pages worth of information from you.

2. Transfer the money

Once you’ve created the account, this part is easy.  The problem is, you usually have to wait several days for the funds to actually show up in the new account.

3. Move your automation

If you have any automatic withdrawals or deposits scheduled with your old accounts, be sure you remember to move those over.

4. Close the old account

Not usually a big deal if you forget this step.  Just make sure your old bank doesn’t charge you for leaving a zero balance behind.

My Time is Worth Something

So, let’s say I’m thinking of moving an account that has $10,000 in it.  If my new interest rate is 1.05%, I’ll go from taking in $75 a year to $105 a year.  That’s a $30 increase.  For some this might be worth the move.  For me, it’s just not worth the time and effort of changing banks.

It’s Called a “Savings” Account for a Reason

Savings accounts are not in the business of making you money.  If you have $10,000 in an account that pays you 1% interest, you’re talking about $100 per year.  Now, don’t get me wrong,  money is money. But, you’re not going to retire a millionaire making $100 a year.  Interest is a nice side benefit, but the primary purpose of a savings account is to act as a Tupperware dish for your leftover money.  You want a safe, low risk place to stash your cash so that it’s there when you need it.  Whether it’s for an emergency or for that vacation you plan to take next year.  If you plan to spend the money in less than five years, park it in a savings account and forget about it.

Other Guys TLC

So, while there may be banks out there that offer higher interest rates, don’t go chasing waterfalls.  Just stick to the one that your used to and you’ll be just fine.

It’s Not Too Early to Start Saving for the Holidays

I know Labor Day was just last weekend, but it won’t be long before Target starts selling multi-colored artificial Christmas trees and the aroma of Pumpkin Chai lattes waft over the sidewalks outside of Starbucks.  It’s certainly not too early to save for the holidays.  In fact, it might be a little late.  Starting in January, decide on an amount you want to spend on gifts and start saving.  Divide that amount by twelve and add a line to you monthly budget for the result.  Every month, put that same amount of money aside and by the time December rolls around, your holiday gift money will be all ready to spend.  If you’re just getting started now, you’ll have to divide by three instead of twelve to save up for this December.

This strategy doesn’t have to apply to Christmas gifts alone.  Add a general “Gift” line to your monthly budget.  Now you can use this money to buy gifts for birthdays, weddings, Father’s Day, Mother’s Day and other gift-giving days.  This will take a little more planning, but you should be able to figure out ahead of time what gifts you will need to buy throughout the year and how much you’ll need to set aside each month to pay for them.

Sadly, many people get swept up in the gift giving spirit and end up spending more than they planned.  Then January comes along and the credit card bill is more than they can afford.  Instead of flying by the seat of your pants, not planning ahead and spending like crazy, save up and be your own credit card.  The holidays might just be a little more enjoyable.

The Magic of Saving Your Money

When left alone for long periods in a savings account, or better yet, in the stock market, you may notice your dollars start to multiply.  Slowly at first.  In fact, painfully slow for the first few months.  But, if you’re patient, and leave your dollars alone for a few years, the multiplication really starts to pick up speed.  So much so that your money can double, or triple, or even increase by 10 fold!  You’re rich!  And all you had to do was leave some dollars alone in the right spot for a few years.  This phenomenon is called compound interest and as simple as it sounds, many people don’t leave their dollars alone long enough to reap the rewards.

To further illustrate the power of compound interest, let’s look at some actual numbers.  Say you invest $1,000 in the stock market where you should see an average annual return of 10% (it’s actually closer to 12% but I’ll be conservative and say 10).  In 10 years that $1,000 will turn into $2,500.  In 20 years you’ll have $6,700 and in 30 years you’ll have $17,400!  30 years of alone time and your money has multiplied by a factor of 17.  That’s amazing to me!

Now let’s up the ante a bit.  You decide to take $100 out of your paycheck every month and add it to your original $1,000.  If you do that for 10 years, your initial $1,000 turns into $23,600, $82,300 in 20 years, and $234,500 in 30 years!  Ridiculous, right?

As the years pass by, your income is likely to increase as you gain experience at your job and move up in your career.  You may also have debts that you’ve been able to pay off that will free up more money for saving.  So, let’s say every year you can afford to increase the amount of money you set aside by 4%.  Well, now you’ll have $27,000 after year 10, $106,500 after year 20, and $330,000 after year 30!

As you can see it doesn’t take much to save up almost a third of a million dollars.  All you have to do is make saving a priority.  To make saving even easier, set up an automatic savings plan at your bank.  If your employer offers a retirement plan such as a 401k, schedule either a percentage or a fixed dollar amount to be taken out of every paycheck.  Just set it and forget it!  Years from now you won’t regret having all that money sitting there.