Gone are the days of the Reagan regime and double-digit interest rates on savings accounts. Gone, too, are the late 90’s and early 2000’s when you could have snagged an account paying up to 7% interest. Now, we are looking at historically low interest rates, with very few institutions paying even 1% on deposit accounts, with Certificates of Deposit paying only slightly more without depositing a large sum or being locked in for a term of 5 years or longer. So what are savers to do, stuff their cash in coffee cans and bury them in the backyard? Regardless of the interest rate you may be getting on your savings, anything is better than zero as a rate of return.
Obviously, with interest rates as low as they are, the temptation is there to talk yourself out of keeping your money in a liquid, easily accessible cash account. The inclination may be to keep just enough money in a checking account and opt for other vehicles such as investment accounts, peer-to-peer lending accounts, or even to use the cash to pay off bills since the return will be greater compared to parking the remainder of your money in a non- or low-interest paying account. The fact of the matter is that no financial plan is complete without liquid accounts that are easy to access at any given moment. The most popular forms of such an account are emergency funds and specific-needs funds (ie: holiday or vacation accounts), which are tools that every single person should have.
But, why is it so important to put the money in an account that earns such a paltry return? Why shouldn’t I just keep the money in a sock in the back of my closet since I can access that at any time I may need? The answer is very simple, and it’s the same reason you should never opt out of and employer-matched retirement account: free money. Since you need to have a liquid account, whatever the reason, it makes absolutely no sense in the world to have the money just sitting there. If you are going to have money in a deposit account, you might as well have that money working for you, making the most of each dime you can. The best thing you can do for yourself is to ensure that you are getting the most out of every dollar you have. So what if you aren’t going to get rich from a savings account, at least you will be getting something in return, even if it means having a little extra in the even of an emergency, or the ability to get a few extra souvenirs on that vacation.
Institutions such as ING Direct, Ally Bank, and EverBank all offer low-minimum options that link to your current checking account and make transferring funds as easy as a few clicks of your mouse. For those who worry about the safety of online banks, most are simply extensions of existing financial institutions that have been around for decades, if not more than a century. There really are no more excuses not to be taking advantage of them.
So tell me, have you stopped putting money into a standard old deposit account (whether traditional or online)? If so, where do you keep it and why?