In previous blog posts I described myself as a big saver, but I wasn’t much of one before I got my savings account. I opened my savings account back in 2016 after I graduated from college. I was working consistently and paying off my student loans, but my parents encouraged me to put money into my savings account because if I kept it in my checking account I was just going to spend it!
Savings accounts are basically your bank paying you to keep your money with it. I think of my savings account as a place to hold money before its intended use. The average savings account today has a 0.06% interest rate, meaning the money in your savings account will appreciate by that percentage over one year. It’s definitely not a place for my money to grow—I’m making $0.14 per month at most on my savings. Rather, it’s a place to accumulate money until it’s time for it to shine and fulfill one of my goals.
I learned from Bola Sokunbi in her book “Clever Girl Finance” that psychologically it’s better to separate savings for different goals into their own savings accounts to not only avoid confusion but to not feel that you’re being set back on your other goals when you need something for one specific goal. Right now I have money to be invested and my emergency savings in the same account, but they should really be in separate places so I can see my goals clearer. Thankfully they soon will be, but I also want to look into a high-yield savings account, which I learned about while dissecting Carrie Bradshaw’s financial situation.
First, it’s important to make sure that any bank you’re putting your money in is insured by the Federal Deposit Insurance Corp. (FDIC). This means that your money will be safe should the bank go under. You can check if a bank is FDIC insured here.
After some researching and reading reviews, I found a few candidates for my future high-yield savings account: Sallie Mae’s SmartyPig, Axos Bank, LendingClub and Discover. SmartyPig offers a 0.70% annual percentage yield (APY) or interest rate on my savings, but the caveat for this higher yield is that it only applies to amounts under $10,000. Once you have more than $10,000 in your SmartyPig account, the APY falls to 0.45%. Axos Bank can give you 0.61% per year up to $24,999, but after you hit $25,000 the APY is much lower at 0.25% and goes down to 0.15% on more than $100,000. LendingClub offers 0.60% APY for balances of $2,500 or more. Through AAII’s partnership with Discover, you can get 0.55% APY without any restrictions or minimums (this is higher than what you can get through Discover without being an AAII member). These are all high yields with good options—I would just have to decide which option fits each goal. Maybe I’ll end up having more than one high-yield savings account to maximize the interest rates for the amount of money I want to save.
On the topic of how much you should have in a savings account, I recall many years ago when someone told me that they couldn’t believe a person they knew had more than $100,000 in their savings account. I knew that having too much in a savings account was as bad as not having enough—the opportunity cost of not growing all of that money in investments outweighed having all of that money stowed away, and in a manner akin to stuffing cash under your mattress!
I will be revisiting this high-yield savings account research when I open one in the near future, so stick around for more of my investing discoveries!