Make no mistake about it, I am a beginner on the FI expertise spectrum. I have an unfathomable amount of ground to cover and material to learn.
Thankfully, consuming FI information has been liberating. Sure, it has helped me recognize just how much of a novice I am at this, but every article gives me one more weapon to throw at financial bondage, aka, working for THE MAN.
The BIG MAMMA
Even the fundamental principles of finance have jarred me. Now, I don’t want to blow your mind too much with this next part, so go slowly. This is big!
Here is one of the first, and most important principles you will learn in finance:
You want your interest rate on savings to be high, and your interest rate on debt to be low.
BOOM!! MIND BLOWN…
Now, pick yourself up off the floor and let me tell you what I did to more than 100x my savings account interest rate in a matter of minutes.
The only cost: I had to betray my father in the process.
My dad is a stud! Thanks to him, I had an early intro to personal finance that set me on a direct course to the FI train station.
He introduced me to savings accounts when I was about 8. Because he was a banker for one of the biggest banks in the country ( and more importantly my bad-A, superhero dad), I trusted that he knew a thing or two about saving, interest, and investing and feared not that my money would be safe in the account he set up for me.
If you have seen the movie Mary Poppins you know that not all children are quite as apt to trust their fathers with their savings, especially when there are birds to be fed.
However, there was no chasing nor arm twisting for me.
I have kept that same account for over 20 years and it has done a great job of keeping my money “safe”. But, the price of safety has been a consistent interest rate, to the tune of 0.01%.
Recently, the financial world has seen Electronic Banks pop up on the internet. Because they don’t have to pay for brick and mortar buildings and the costs that come with them, these banks are able to offer interest rates that eclipse what I was getting for over 2 decades.
Paralysis by Analysis
I became aware and envious of this around 3 years ago and my wife and I hmm’d and haw’d about doing something about it… but we didn’t. It cost us hundreds of dollars.
Well, about 2 months ago, JT gave me a verbal backhand when he realized we hadn’t made the transition to an online savings account. “Interest rates bro!”
After picking myself up off the floor like you just did, still in a daze because JT works out… I did one google search and found this.
The math made sense, but my emotions stepped in. NO! What about your dad? What would he think? The nostalgia of that account and its history was crippling… Ok, I’m being a little dramatic. But, I did think about it!
Long story short, I could not refute the math, and I made the transition. Sorry Dad!
What’s the Catch
Yes, I asked the same question you are asking, what is the catch?
Well, catch 1, I can’t go to the bank to withdraw my money. So far that hasn’t been a problem. I can transfer funds from the savings account to my checking account effortlessly, for free, and safely and it arrives in 24 hours. But I still do have access to thousands of ATMs all over the U.S.
Catch 2, my money is floating around somewhere in the cloud and can’t be guaranteed. Wrong. It is FDIC insured. Besides, isn’t everyone’s money kinda floating somewhere… maybe this is the over-trusting millennial coming out of me.
Catch 3, with an interest rate like that I expected my minimum balance to avoid fees to be astronomical. Wrong again. It is a $100 minimum deposit to open the account, but there is no monthly maintenance fee and no minimum balance required after that.
After looking at the options, I settled on CIT’s personal savings with an interest rate of 1.55%.
The process of signing up was seamless.
- First, I input my personal information and my account information for my old savings account.
- CIT deposited 2 small amounts over the next couple of days into my old account
- I went to the CIT website to confirm these so that they could confirm I was the owner of the account.
- The next day, my entire savings was transferred over.
I have made more in interest in the last 2 months then I had in 2 years with my other account. It’s not a ton of money, but it is a step in the right direction and was a very easy transition.
For me it was a mixture of laziness and distraction. What is holding you back from online savings?
Addendum: Savings 201
Shortly after making this adjustment, I listened to This podcast on ChooseFI. In this episode, Big ERN, a very successful and recently retired FI blogger, explains his alternative view of ditching the emergency fund and replacing it with a brokerage account invested in index funds and a credit card (Dave Ramsey would role in his grave!). It is pretty awesome, and, for me, painfully gutsy.
His argument: The likeliness of you having to shell out 10’s of thousands of dollars overnight for an “emergency” is slim if you have the necessary insurance vehicles in place to protect you from catastrophe.
This gets us into a whole new forest of weeds and has me excited. But, I haven’t quite been able to swallow this yet with my infantile FI esophagus so I will chew on it a little more… Uh oh… more paralysis from analysis!