My husband and I are starting to get in control of our finances in 2014. We’ve been keeping track of our expenditures and changed our direct deposits to divert a small percentage of our income to our savings account, which is earning an anemic 0.12%. In “Make Money, Not Excuses,” you recommend Bankrate.com to research interest rates. Maybe I did it wrong, but the very best rate I could find was only 1%, and for that account, you had to have an opening deposit of $100,000. I’m finishing up my Master’s and my husband just graduated from culinary school last April — there’s no way we’ll ever be able to put that kind of money together. Meanwhile, we’re paying 6.8% on our student loans (thanks, Congress). How will we ever get our heads above water?
Elizabeth, don’t worry – you didn’t do anything wrong. Savings rates in this country are really, really awful right now. The best just about anyone can find is in the 1% range (although I have a few suggestions about where you can do just a little bit better and I’ll give them to you in a second). The step that you and your husband took to track your expenditures and save automatically is absolutely perfect. It’s exactly what I want you to do and that’s because the habit of saving is the most important thing and automating is the easiest way to make that habit stick.
As for those savings rates, they will go up. As the Fed starts to raise interest rates — which it will eventually do — savings rates will go along for the ride and you’ll benefit. In the meantime, if you want to eke out a little bit of added return on your savings, check out high interest rate checking accounts (checkingfinder.com, kasasa.com). If you’re willing to pay at least a bill or two online and use your ATM card for (typically) 10 purchases a month, you can get a fairly decent (again, comparatively) rate of interest on your checking account. These accounts have maximums, rather than minimums. Usually you can’t keep more than $25,000 or so in them.
The other place to look is a bank called Santander. Their extra20 checking product offers a return of $20 a month ($240 a year) to customers who make at least $1,500 per month in total direct deposits and pay at least two bills online from their account each month. The account doesn’t have a minimum balance requirement, nor a monthly maintenance fee. On $1,500, that $20 a month works out to an interest rate of around 16%. Granted, the more money you keep in the account the lower the rate actually is, but it’s substantially better than you’re getting anywhere else. (At least anywhere else that I’ve been able to find.)