Every week, Financial Aid will give out easy and quick tips to help college students to better save, invest or spend their money. This week: Switch to a better savings account.
In the words of Trent Hamm, the financial mind behind The Simple Dollar personal finance blog, “Switch your bank accounts to a bank that respects you.”
In choosing a savings account, it’s worth our time to see which ones can offer us the best interest rate. And though interest rates are quite low (blame the economy and the Federal Reserve), there are still a number of discrepancies between various banks’ rates. You can take advantage of this.
Currently, the large banks around campus offer the following yearly interest rates for comparable savings accounts:
- U.S. Bank’s Goal Savings Account: 0.10%
- Bank of America’s Regular Savings Account: 0.05%
- Chase’s Chase Savings Account: 0.01%
You may be aware that each bank also offers different types of savings accounts. Some earn you more interest, but also require a minimum monthly balance, and charge you money to open the account. But in this week’s column, we’re sticking to the basics — looking at saving accounts for students who have less than $10000 in the bank, and aren’t yet ready to invest their money.
The interest rates listed above are for how much money you’ll earn in a year. So if you have $2000 in a U.S. Bank savings account, by the end of one year, you’ll have earned $2 ($2000 multiplied by your interest rate of 0.10%, or 0.001).
Now check out these banks:
- ING Direct’s Orange Savings Account: 1.10%
- Ally’s Online Savings Account: 1.09%
I’m not scamming you. If your $2000 was at ING Direct that year, you’d have earned $22 ($2000 multiplied by your interest rate of 1.1%, or 0.011). That might only be a $20 difference, but ING Direct is paying you ten times more money. Ally’s rates are just as strong. Both these banks have no monthly fees and no minimum balance. But there has to be a catch, right?
Companies solely offering online-only banking can give higher interest rates because they don’t have real physical branches. They don’t need to pay rent, utilities, or people to staff branches, so they pay you more money instead. The trade-off, however, is that you won’t be finding any “ING Direct” ATMs anywhere. Instead, these banks help you set up a bank-to-bank transfer with another bank’s checking account.
For example, I can have a U.S. Bank checking account linked to an ING Direct savings account. Whenever I want to withdraw money from my ING Direct savings, I transfer it to my U.S. Bank checking (for free), and then withdraw my money from a U.S. Bank ATM. The only real downside is that the funds take a few days to transfer, so you have to wait. But honestly, your checking account – not your savings – is for acquiring quick money, and that extra one percent of interest is well worth the short wait.
In the past, I never cared about where I opened my savings account. Why? I didn’t have much money and banks weren’t offering me much interest. So the pennies I earned for having $1000 in the bank didn’t seem worth investigating. But when it became obvious that my bank was giving me the short end of the stick, I switched, and I recommend you do too. Dragging your heels on this one really costs you money.
You can compare more interest rates at money-rates.com, or do some sleuthing on your own right on your bank’s website. Just be prepared, you may need to click three or four links before you get to the right page.
Switched to a better savings account. Check. Next week, Financial Aid will share with you a few tools that can help you manage your money and find out which vices are draining the dollars out of you.