Tag: high-yield savings accounts

Opening High-Yield Savings Accounts

Last time I wrote about savings accounts, I asked my Instagram followers if they knew the interest rate on their savings accounts. I gave them four options: 1) Yes, but it sucks; 2) Yes, it’s actually making me money!; 3) No; and 4) I don’t have a savings account.

I got 15 responses: Three of my friends said they know their interest rate, but it sucks; six said they don’t know the interest rate; and six don’t have a savings account. I would say most of my followers fall between the ages of 20 and 40, and some of those without savings accounts are either younger than me or not working full-time yet.

However, no one selected, “Yes, it’s actually making me money!” This didn’t surprise me, but it motivated me to continue my research and finally open some high-yield savings accounts.

First, I revisited SmartyPig, which still offers a 0.70% annual percentage yield (APY), or interest rate, on my savings. This account will let me save up to $10,000 at this high interest rate, but once I have more than that the APY drops to 0.45%. I decided to call this my “grower not shower” savings account, where I’ll put money before investing it so that I can make the most of it before its intended purpose.

Signing up for a SmartyPig account was easy, it just required my name, address, Social Security number and creating some security questions. At some point I was asked if I had lived at my current address for more than two years. When I said no, I was asked to also enter my previous address. Once I read the disclaimers, I was able to manually connect my current bank savings account to make a transfer.

Then I wanted to look at some high-yield options that gave me more flexibility with my savings. LendingClub now offers a 0.65% APY, higher than it was when I last looked into it! The only restriction is that I must have at least $2,500 in the account. I’m calling this one my “movin’ on up” savings account where I’ll be putting funds to save up for buying a place in the future!

Opening an account with LendingClub was slightly different than SmartyPig. I was asked to create a security phrase, and I was able to connect my bank automatically using Plaid. From there, I could designate which account I wanted to connect and choose the amount I wanted to transfer. There were many disclosures to read, but most didn’t apply to the high-yield savings account I was opening and were instead about LendingClub’s other banking and card offers.

I decided to open two different high-yield savings accounts so that I can maximize the yields across both, and because I want to keep my savings goals separate as Bola Sokunbi explained in “Clever Girl Finance.” For now I’m keeping my regular savings account with my bank, designating it for emergency savings.

I’ll keep you updated on how my plan goes, and as it changes along the way!

What Is the Purpose of a Savings Account?

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!

The Carrie Finances: Introduction

In my recent rewatch of Sex and the City, an episode where main character Carrie Bradshaw is forced to buy her apartment or be evicted by her ex-fiancé Aidan revealed that Carrie only has $700 in her checking account and $957 in her savings account! Indexed to inflation from 2001 to 2021, that would be approximately $1,100 in checking and $1,500 in savings. Given that Carrie’s apartment was previously rent controlled for $750 per month (a steal in New York City then and now, at around $1,200 with inflation), the bulk of her income was spent on her Achilles heel: expensive shoes—according to her, $40,000 worth!

The down payment required to buy her apartment is $30,000. After consulting a loan officer at the bank, her ex-boyfriend Big and her three closest friends, her friend Charlotte gives Carrie the engagement ring from her first marriage to float the bill and save the apartment. Carrie promises to pay Charlotte back in full.

https://www.youtube.com/watch?v=1maxJJBcgQ4

At age 35, Carrie has little to her name in assets but “many life experiences,” she notes. As much as we like to enforce the idea of saving from a young age, Carrie makes a good point about enjoying your life while you’re young—but shoes are not the same thing as life experiences! What if Carrie had spent only half of the $40,000 that she estimated she spent on shoes, and put $20,000 in savings …

Carrie says that at this point she has lived in Manhattan for a decade, so let’s see how much money Carrie would have if she put $20,000 in her savings account for 10 years. The average savings account today has a 0.06% interest rate, meaning the money you have in your savings account will appreciate by that percentage over one year. The more you put into your savings account, the more money you’ll make in the long run. Over a 10-year period, Carrie would make about $270 on her savings, which isn’t much and wouldn’t cover her down payment.

But what if she used a high-yield savings account? High-yield savings accounts have interest rates much higher than the average bank, some as high as 0.70% today. If Carrie had her money in a high-yield savings account, she would have almost $21,000 in total savings.

This would be the best Carrie could do at this level if she still wanted to maintain half of her Manolo Blahnik shoe collection. Even with a high-yield savings account, she still wouldn’t be able to pay for her apartment on her own at today’s low interest rates.

When I first watched this episode, I was horrified by Carrie’s financial state! I couldn’t help but wonder: Would she would be able to support herself? Unfortunately, she would have to start investing or save more of her income to do anything more with her money. She might also have to sell some of those shoes, but that would be even more painful for her! Through my Carrie Finances series, I intend to teach myself about budgeting and life-planning so that my finances are in better shape by the time I turn 35 than Carrie’s are!