A penny saved is a penny earned. ~ Benjamin Franklin
Ben Franklin was on to something when he said the quote above. Due to the recession, we are starting to understand the importance of saving money. Whether it be to survive during unemployment, or to take advantage of an opportunity that presents itself, having savings is a necessity. There is also the importance of making interest with that money.
There are many places where you can put your money. There are higher risk investments such as stocks and mutual funds that requires your money to be invested with the possible risk of the equities losing value resulting in a loss of money. There's also other investments such as bonds that offer less risk but typically requires your money to be tied up for a certain amount of time. For the average saver, a good interest rate and reasonable access to their money are the requirements for where their money resides.
Although there are many factors that are used for where most people decide to save their money, I personally keep my "savings" money in an online savings account.
Why Online Savings Accounts?
If you walk into your local bank branch, you will find that they offer savings accounts. These accounts are backed by the FDIC (Federal Deposit Insurance Company) and allow you more immediate access to your funds as well as the benefit of talking to someone in person in the event that you need to discuss the account. However, these accounts offer a very low interest rate. (0.1 - 0.3%) which defeats the purpose of saving the majority of your money.
Online savings accounts are also backed by the FDIC and have the benefits of having a much higher interest rate as well as reasonable access to the funds in that account. The typical three day delay of accessing your funds is usually a good deterrent to impulse buying, but is quick enough to get access to the money in the case that there is an emergency where the money is needed. The higher interest rate is the main benefit from having one of these accounts.
See below for an example of why a higher interest rate matters:
Bank 1
Bank of America "Regular Savings Account Interest Rate": 0.1% (Link)
Amount to Save: $1000
Years to allow the money to save: 20 years
Amount of money at end of 20 years: 1,020.19
Interest Paid after 20 years: $20.19
Bank 2
Ally.com "Online Savings Account Interest Rate": 1.85% (Link)
Amount to Save: $1000
Years to allow the money to save: 20 years
Amount of money at end of 20 years: 1,442.85
Interest Paid after 20 years: $442.85
Difference: $442.85 - 20.19 = $422.66
That is a $400 difference which helps to explain the importance of getting the best interest rate possible for your money.
Below are the different links to the websites of each of the online banks.
Although each of these saving accounts have individual pros and cons, the ultimate decision in deciding which account to choose is dependent on the individual saver. I recommend to go with the bank that has the highest interest rate because in my experience, most accounts typically have the same benefits as other online savings accounts.
As usual, I hope that you find the information in this blog useful. Please let me know your thoughts about your saving in the comments below.
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