Monday, May 20, 2013

Savings Accounts suck

About 3 years ago I knew little to nothing about savings accounts. I did have a 401k through my employer in poorly-allocated funds, but it was there and it was automatic.

Now that I am slightly more educated in the whole system, I can confidently say that it sucks.  It is such a horrible tool overall. Besides the fact that most savings accounts cannot even keep with half the rate of inflation, we're constantly being fed really high interest to borrow. Am I the only one that has an issue with the bank paying us 0.8% interest to hold onto our money, while they loan it for over 18%?

Looking for alternatives doesn't yield a lot of hope either. I have mid term (EF, car fund, >12mo) and short term savings (Vacation, Christmas, <12mo). I eventually want to have long term savings, of course, like a house down payment, but I'm not ready for that yet. The problem with short- or mid-term savings is that you need to keep them relatively accessible, liquid cash, which rules out most long-term CDs that may offer a slightly better rate, but penalties for withdrawal.

I have my ING/CapitalOne360 savings account which hold the shortest-term or in-transit funds, like month-end payments or things like my phone fund. The interest yield has came down to 0.75%. My other savings are in an Ally account, which has come to 0.84%. This is quite a depressing state of affairs!

So, where do you have your savings? Do you keep them anywhere? Have you looked or considered at bonds or CDs?

Let me leave you with this very interesting infograph from MoneyRates.com I found in my research.

16 comments:

  1. We keep our money in just the regular bank but I don't really count on making any money off of it (I think, last year we earned $2!). It's exactly just "keeping". There are better but more high-risk opportunities to invest but we just don't make enough at the moment to risk it.

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    1. I feel the same way... that a small balance of $2k might not make much of a different, but it is ridiculous how little return is offered.

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  2. We have several places where we keep our money, depending on what it's for. If we know we'll want it for a house project (our mid-long term remodel goal), we're okay investing it in a money market account, or other (relatively) low risk fund. If we envision needing the cash in less than a year (emergency fund, paying for taxes, etc), we keep the money in a savings account that is basically low/no interest. It's available to us, but certainly not earning anything.

    For longer term investments (401K/retirement), we're invested medium to high risk stocks for some, bonds, and lower risk investments - our portfolios are balanced to attempt to accommodate for our risk factor at our ages and retirement timeline horizon. We'll see if that plays out the way we hope it will. ;-)

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    1. Yeah, I guess a down-payment fund would have to go into a money market account of sorts?

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  3. I see you have almost $30K in credit plus student loan. What interest rate are you paying on that? If you are paying 18% on charge cards, that's because your credit isn't so hot. And you shouldn't have charge cards anyway.IMHO.

    What the charts above you posted forgot to mention are the fees you are charged if you 'invest' in 401K and other Wall Street rip offs. Recently it came to light that a $600K portfolio, over 20 to 30 years of a person's lifetime sucks out over $155,500 in fees!!!!!! The banks may only pay you .84% but they are not charging you any fees (unless you bounce checks, have a low balance or don't use your account much. Then the bank is losing money and charges that loss back to the customer.)

    Rather than chase interest, keep saving your money, pay off your debts and buy a home pronto! The hone will build up your net worth without any pesky fees!

    Biggest inflation fighter: shop smarter. Buy things on sale, below cost or at yard sales. 1.5% is NOTHING! In the 1980's we used to pay 15 to 18% more just on a loaf of bread!

    If you really want to earn more than .84%, buy government bonds, like savings bonds, e-bonds, etc. You buy them directly from the federal govt and simply have to hold them for 6 months in order to sell. You'll earn around 1.5% last time I looked.

    Good luck. You're doing fine. Don't make the mistake of chasing interest rates or trying to make more money. You may find yourself on the fuzzy end of the lollipop stick if you so.

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    1. Well, I only have 8k in student loans, not 30k (thank goodness!). I have charge cards that I don't care what their interest rate is because they do not carry a balance that would accrue interest. My IRA has a very low management fee of .18%, but it's still fairly small... all of my 401k funds are also low in fees, but I can't control that. You do mention a possible 155k in fees, but what was the return? Too many variables missing.

      I'd really hate to be chasing interest, so I was trying to avoid that by looking at longer term alternatives. Thanks for your contribution!

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  4. We have 3 different accounts...

    #1 - Holds our EF and our money to pay bills every month. We keep a minimum $5K in this account to save bank fee's of $13.00/month. This adds up to $156/year in savings that we'd have to pay if we were paying bank fee's. We won't get interest this high anywhere else.

    #2 - TFSA (Tax Free Savings Account) We've already paid the taxes on this... this holds our long term savings which is just under $3K and i'm trying to build up.

    #3 - Slush Fund: This is a low interest account that we can't directly pull $ from. The money has to be moved to our main account or else our fee's rack up by $5.00/pop! I like to keep $3K in this account for "this & that", medical, dental, etc....

    That's how we use our bank! :)

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    1. You do so well avoiding those fees. I do wish we could get a TFSA in the US, though!

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  5. we have all our savings in savings accounts, especially because a CapitalOne 360 CD currently earns the same as a regular savings account, so at least I have easier access to it with a savings account. We try not to worry too much about inflation--it's always going to happen no matter what you do. Just do the best you can...at the end of the day we're talking about a few dollars...

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    1. Yeah... not sure what's up with CDs yielding less than some savings accounts (like Ally's!). Even if it's a few dollars, wish they'd do more.

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  6. Ok, where to start? The only "banks" that I know that are lending money at 18% are credit cards. Most banks are lending money for around 4%, give or take. After taking into consideration their risk, cost to service the loans, and overhead, its not like they're making a killing.

    On the other hand, the very low interest rates have stimulated our economy. The housing market has come back in the last year. Unemployment numbers have kept dropping due to businesses able to borrow money at good rates. Many small businesses have expanded or purchased more equipment.

    If you're in a position where you're depending on interest rates for your income, you should be looking at other options like the bond market which has performed extremely well. You can have as much risk as you would like while still getting better returns.

    I think its wonderful that the low rates have made it so that people can now afford houses and are being employed in greater numbers.

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  7. I think you really had a bad experience but not all banks gives services like this on
    saving accounts
    .There are so many good banks available today who provides the best services to their customers years and years.Thank you so much for sharing your experience with us.

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  8. I don't have enough money to start worrying about interest rates on savings accounts and all that yet but the day is coming when I'll be able to send more money to savings rather than paying off debt so I have been thinking about it more recently. And, yes, it's kind of depressing. At the moment my plan is to have 3.5k in my Irish bank account - it's a current account so I won't earn any interest but having a 3k balance at all times saves nearly 50 euro a year in fees, which isn't a lot less than I'd earn on interest in an easily accessible account anyway. Then I want to build up a 2k positive balance on my German mastercard - that will only earn interest at the ECB rate minus 0.3% but having a plus balance means paying no interest on the amounts I may use the card for. And having both of these amounts always easily available will make up a pretty good emergency fund. Apart from that I have a couple of savings accounts which I use just for parking money until bills come in (annual insurances for example) or money for holidays and since that's (a) not a lot of money and (b) never going to stay put for a long time.

    If I ever manage to get that much saved then the next then will be a deposit for my own place but I have a while before I really need to be thinking about that yet. A blogging friend has completely lost faith in traditional banking systems in the last year or so and now holds most of his money in gold/silver and peer-to-peer lending. The p2p lending is kind of intersting and something I probably will consider when I have money. Here's one short post he did recently: http://www.ecopunk.org.uk/2013/05/what-i-said-to-friend.html

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  9. I also don't have enough money to worry about interest rates.. I have a small savings account which I add to each month. It's a lot but it's something and don't laugh, I have a coffee can savings at home.. LOL I think I still believe in the old "Stick it under the mattress" idea..LOL

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  10. you really had a bad experience. but saving account offers maximum liquidity and security. The concept of saving account came into existence with the idea of providing safe option for keeping your funds. The account holder can withdraw the funds anytime through cheque or ATM. The bank ATMs are now located almost in every part of India to offer the ultimate convenience to its customers. The savings account will not just take care of your funds but it will also offer interest on your funds.

    saverable.com

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  11. I admire your graphic visualizations and the charts. This can help people visualize the importance of having savings account and saving money for the future.

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