The Annual Percentage Yield (APY) on your savings is how much your financial institution pays you for keeping your money in their account. How To Find Savings Accounts That Pay More Money means you just use that money to make YOU money and not the bank.
I want to make sure you understand your money is not just sitting in your account. When you log in and see the account balance, you feel great that you have it. But the bank is making it work for them. They are using it to lend to other customers. So the bank is paying you maybe .01% in interest and charging the other customer 3.1% on their loan. That is quite the mark up.
Look around and find yourself an account that pays more, hopefully around 1%. Here are those numbers:
$5,000 in savings with .01% APY means you earn around a whopping $.50 a year.
$5,000 in savings with 1% APY means you earn around $50 a year. That will help add some money into your savings account. Money that is just sitting there should be working for you.
If this is your true emergency fund (like “the car breaks down and you have it fix it” money) don’t be tempted to take this money and put it into the market or lock it into a higher paying Certificate of Deposit (CD). Both have penalties for withdrawing funds early. This money is for you to be able to get when you need it quickly.
Looking for more money savings ideas? Check out Buying a Car Without Getting Ripped Off!
How To Find Savings Accounts That Pay More Money
- Look At Online Banks: Online banks have lower overhead because they don’t have to maintain branches. My savings account at my bank was paying .05% interest. So with a $5,000 balance it meant I was earning $2.50 a year. I switched over to an online account paying 2% and now earn around $100 a year. When comparing rates, the internet is your friend .
- Make Sure There Are No Fees: You don’t want to pay a monthly fee that will eat into the money you are making. Some will have fees if you fall below a minimum balance, but as long as you keep a good balance you will be fine. If the money in this account will be used for a big purchase at some point (like a car), make sure you won’t fall below the minimum to keep the account open if you don’t want to close it.
- Make Sure it is FDIC Insured: The Federal Deposit Insurance Company was created in 1933 and it ensures that funds deposited in eligible banks are safe in the event of a bank collapse. It was a result of the bank failures in the early years of the Great Depression. This way your funds are safe if the bank goes under and are insured up to $250,000 per bank.
- Be Sure to Have Access to Your Money: I was willing to take an account that paid a little bit less in APY so I could have an ATM Network. I really wanted to be able to get to my money if I needed it without having to wait a week or so. I just felt better knowing I could get cash. Now I do want to note these ATMs are not incredibly convenient (by design) but I can get to them. They are not on my normal drive to do a quick $20 withdrawal if I am running low on cash.
- See How the Interest Compounds: You can find accounts that compound on a daily, weekly, monthly, quarterly, or yearly basis. The more often it compounds, the faster your savings will grow. Every institution I have ever worked with compounds monthly and that has always been fine for me. I wouldn’t want to go longer than that. If you need to, Google “how is compound interest calculated” to learn more about the actual math.
- Consider Your Deposit Amount: When you look at a chart of APY rates, it may seem like a no-brainer to go with the one that pays 2.15% over the one that pays 2%. But if your deposit is $700, the difference between those two accounts is only about $1. If you are depositing $60,000 it makes a bigger difference. Look at the complete picture for the account and don’t make the APY the main deciding factor in your decision making process.
Laura M. Oliver is the author of Singles: Take Control of Your Own Financial Journey. It is available in paperback and Kindle on Amazon.