So I got a bonus at work recently, yey:)
What should I do with it? We just had a trip not so long ago, and besides we’re both busy with work, and studies, and whatever, so I decided to put it aside until we have some time to have more fun.
So, the question of the day is – where the heck should I keep the money these days?
I’m not a financial guru and certainly not a competent advisor, I just want to make sure I don’t loose it all in two days on the volatile stock market. So, I decided to go with the most conservative approach – savings account. Plain old “give us the money, we’ll pay you interest” thing. Every bank has it. Including both of the banks I use for my checking needs.
Next step – checking the rates. Two banks, in a competitive market, would probably try to beat each other on rates, right? You’d think… Well, the first one pays 0.15% APY, and they call it “Bonus rate”. That means that if I put a $100 on that account for a whole year – I’ll get back $0.15 interest. Ridicules. The second bank? A little better. 0.25%. For the same $100 they’ll give me a dime more per year. yey. Well, still, almost 66% improvement.
But is it the best a conservative investor like me can do?
The alternative lies in the online banking system. Banks that have no physical presence in every neighborhood were in disadvantage up until very recently, but in the last decade, with the internet penetration rates spiking, the disadvantage became an advantage.
These banks don’t need to maintain thousand of branches and tens of thousands of employees, they can scale their business to acomodate the demand very quickly, and they can provide competitive rates because of all these savings that they have. So, if my two old-fashion neighborhood banks can’t provide rates higher than 0.25% per year, the online banks can provide rates of, listen carefully, 1.3%. Some even higher. That’s five times more than the good old neighborhood branch bank (or more than eight times more, comparing to the offer from the other bank in the neighborhood).
So, several examples (not a complete list, based only on banks I actually know and can personally recommend):
ING Direct – offer 1.10% APY, no minimum balance, no fees, very convinient. Also provide electronic checking account which bears 0.25% APY.
E*Trade – offer 0.70%, very convinient site, and easy to use money transfer system.
HSBC – offer 1.10%, and is actually a world-wide spread huge bank, which has some advantages.
American Express Savings Bank – a new bank by The American Express Company, offers 1.3%. They’re new, and maybe it’s because of that their web site looks like it was designed by a five-years old in 1995, but then again – the rate is competitive, and the bank is reputable, so it’s fine.
There are many more choices, and some provide even higher rate (for example, a Florida-based EverBank provides an online savings account with an introductory rate of 2.25%!!!), and you should go out there and choose what’s best for you.
So, the bottom line is that if the banks in my neighborhood would pay me 25 cents for a $100 deposit over a year, than on the internet I can find a bank that will pay me 5-6 or even almost 10 times as much. And when you get a bonus, which is (thankfully:):) ) much more than $100 – that sums up to quite a difference!
By the way, when you open a banking account – make sure the bank is FDIC-insured. This means that in case of a failure, the FDIC will insure your deposit up to $250000.
Your Little Advisor