Money Under 30 » Saving

Best Online Savings Account Rates (February 2010)

David Weliver — Thu, 04 Feb 2010 21:00:35 +0000

Online savings accounts are a critical tool—especially for young savers—to set aside savings in an insured account while earning better interest rates than at their local bank. This page examines the best online savings account rates and is updated monthly or when rates change. For a more detailed comparison of our most recommended online savings accounts, read: high yield savings accounts compared.

The following chart displays the best online savings account rates for some of the most popular banks among our readers. These top online savings accounts have been chosen not only for their consistently competitive interest rates, but also their customer satisfaction, ease of use, and overall reputation.

Happy saving!

Best Online Savings Account Rates

Bank	Rate	Minimum	Remarks	Link
EverBank†	1.51%	$5,000*	New customers get 2.25% for 3 months	Open→
American Express	1.50%	$1		Open→
Ally Bank†		$1		Open→
WTDirect†	1.26%	$10,000	Top-rated customer service	Open→
FNBO†	1.40%	$1		Open→
Capital One Direct	1.45%	$2,500		Open→
HSBC	1.35%	$1	Global bank	Open→
Discover Bank	1.35%	$500		Open→
ING†	1.15%	$1	Divide into up to 30 sub-accounts	Open→

*The minimum to open an EverBank account is $1,500, but balances under $5,000 are assessed an $8.95 monthly fee.

Have you found other online savings accounts that offer competitive rates with low or no minimum opening deposit? Please let us know in a comment, or share your experience saving with any of the above online savings accounts!

† We have a financial relationship with this company. To learn more, read our disclosures.

What to Do With A Windfall

David Weliver — Fri, 08 Jan 2010 14:55:54 +0000

Say you inherit, win, or earn $3,000, $30,000, or even $300,000. Lucky you.

What should you do with a windfall of money?

You may be inclined to spend it; to buy a new ride or take the trip you’ve been longing for. The urge to splurge is normal; people are more likely to spend unanticipated money (i.e., a windfall) than anticipated money, like wages (Arkes, Joyner, et. al., 1994). Unfortunately, spending your windfall—or at least all of it—probably isn’t the best move.

Here’s a prioritized list of arguably the best ways to use a windfall. Your individual situation may dictate deviating from this list slightly, but this is solid foundation for planning how to use unexpected money. (Note: You may decide to split your windfall among a few of these goals; that’s fine.)

1. Account for Taxes

Most likely, your windfall is taxable. Before you spend a dime, figure out what taxes (if any) have been withheld, and if it was enough. If the windfall is especially large (say, equal to or more than your regular annual income), it would be wise to hire a tax professional to help you minimize your tax liability.

2. Pay Down High Interest Debt

Once you are confident that Uncle Sam is paid-in-full, put high-interest credit card debt in your crosshairs. If you have debt and your windfall can repay it in one chunk, do it. Be sure to have plan for handling your credit cards after the debts are paid. Can you resist using them to dig a hole again? If not, get rid of them.

3. Check On Your Rainy Day Fund

If you don’t have debt or have windfall money left over after paying debts, it’s a good time to give your emergency fund a check-up. As a bare minimum, do you have at least $1,000 in a savings account set aside for emergencies? What about between three and six month’s living expenses? If not, use your windfall to pad this ever-important account. Don’t worry too much about the interest rate you are getting. This money is not an investment, it’s your safety net.

4. Max Out a Roth IRA

Next, consider funding a Roth IRA up to the annual maximum allowed contributions. A Roth IRA grows tax-free for retirement; it’s the absolute best way to make today’s windfall turn into tomorrow’s nest egg. You can contribute up to $5,000 to a Roth if your income falls below defined limits. You have until April 15 each year to contribute to a prior tax year’s Roth IRA. For more, read Why You Need a Roth IRA.

If you have money left over and have a 401(k) or 403(b) plan at work, you may also want to increase your contributions to that account, which are tax-deferred. The money going to your 401(k) comes out of your paycheck, but you can use your windfall to supplement your earnings.

5a. Invest

The next step is to invest remaining funds as you see fit. You may choose to open an account with an online broker and pick up some ETFs or no-load mutual funds, lend money to others using a social lending network, or use the money to see a new business venture. Whatever you do, your goal should be to make the money work for you today so it can provide for you tomorrow.

5b. Pay Down Other Debts

Some people would rather be completely debt-free before using extra money for anything else. Personally, I would rather invest money in the stock market before repaying student loans and mortgages with interest rates under six percent, but I understand why some people would want to get rid of these debts first, no questions asked. If your goal is to be 100 percent debt-free as soon as possible, then by all means, pay down student loan or mortgage debt now.

6. Buy Yourself Something

Have some fund, spend a little. Life is short, and it’s stupid to be young, broke and miserable just to grow old and rich! (Just don’t blow all of your windfall redneck-lotto-winner-style.)

Bangor Savings Bank—My Bank—Buys Portlanders Free Parking

David Weliver — Fri, 18 Sep 2009 16:45:11 +0000

My bank, Bangor Savings Bank, pulled a cool publicity stunt yesterday here in Portland, Maine. They paid the city $10,000 to make downtown parking meters free for the day. The bank covered meters with a blue hood that read “Free parking today from Bangor Savings Bank. Unconditionally free ATMs every day.”

The bank’s free ATM feature is what led me to become a customer in the first place. Bangor Savings Bank refunds any ATM fee, anywhere in the world, immediately. Take that, Stank of America!

“The bread and butter of community banking is having a person’s primary checking account,” Yellow Light Breen, a senior vice president for Bangor Savings told MaineToday.com. “It’s hard to get people to change banks. But when people are frustrated, maybe they’ll think of your bank to turn to.”

In addition to free ATMs wherever I roam, I like banking with a local bank because I know my money is staying local and that I can walk into any branch in the state and be treated like a person, not a number. I admit, I keep the bulk of my savings in high-yield savings accounts offered by bigger banks to take advantage of their high rates, but I’ll always keep my checking account local.

I just don’t see what advantages big national banks offer checking customers, other than a large ATM network—which Bangor Savings Bank’s ATM feature altogether negates.

Do you use a local bank that you love? Who are they, and why do you love them?

Free Savings Calculators on the Web

David Weliver — Tue, 11 Aug 2009 16:14:30 +0000

Leading online savings bank FNBO Direct is relaunching its pay yourself first challenge with a handy savings calculator that lets you quickly evaluate your monthly saving and spending and find new ways to save.

Here’s a preview of FNBO’s savings finding calculator and links to some of the other best free savings calculators on the Web.

Savings Finding Calculator

FNBO Direct’s Pay Yourself First Challenge Savings Finding Calculator asks you for some simple information about:

How much you currently save
What you routinely spend each month on things like coffee, groceries, entertainment, etc.

The calculator then shows you how much you could be saving by cutting down your spending by a certain percentage, and how much that savings could grow over several decades. You can tweak how much you want to cut back your spending, how long you want to save, and the interest rate you hope to earn. Try the calculator now »

Simple Savings Calculator

If you just need to know how much your savings will grow at a certain interest rate, BankRate’s simple savings calculator is for you.

When Will You be a Millionaire?

Want to know how fast your taxable and/or tax-deferred retirement savings will amount to $1,000,000? CNN Money’s Millionaire Calculator can show you.

Emergency Savings Calculator

A emergency savings calculator from BankingMyWay.com lets you estimate how much you need in an emergency fund and calculator how long it will take you to get there.

Ally Bank Online Savings Account Review

David Weliver — Wed, 03 Jun 2009 19:46:10 +0000

There’s a new national bank that now offers online high yield savings account options. Last month, GMAC Bank re-branded itself as Ally Bank. And, when Ally Bank re-launched, the bank unveiled several new online savings account options that provide great high rates, including a online savings account that requires no minimum opening deposit or minimum balance and a no penalty nine month CD .

Who is Ally Bank?

Ally Bank is a subsidiary of the General Motors Acceptance Corporation, which began as the financial arm of General Motors and provided financing to auto dealers and consumers. (In 2006, GM sold a majority share of GMAC, so the two companies are now independent of each other). Last year, GMAC became a bank holding company in order to gain access to federal TARP funds. This year, GMAC Bank changed its name to Ally Bank.

As we all know, GM is having its fair share of trouble these days. Even though GMAC Bank and GM are now different entities, the bank decided to change its name to Ally Bank to, well, distance itself from its now distressed cousin. With a new name and FDIC insurance on all deposit accounts to $250,000, Ally Bank is now making waves in the online savings world by offering some no-fee, high-rate savings accounts.

Ally Bank Online Savings Account

The Ally Bank high yield savings account currently offers a and has no minimum opening deposit and no minimum balance and no annual fee. At the time of this review, that’s the highest no-minimum savings rate offered by any national bank. Ally Bank’s online savings account has no hidden fees. Finally, Ally Bank clearly advertises that there is a six withdrawal limit per statement cycle (approximately each month). This may seem like a downside to the account, except for the fact that federal law requires this limit on all savings account. (Chances are your existing savings account just put this fact in fine print).

Ally Bank No Penalty Certificate of Deposit (CD)

The high rate on Ally Bank’s online savings account is one thing, but Ally Bank also offers a no penalty certificate of deposit. Typically, banks charge a penalty for withdrawing funds from a CD early. (This is typically three months’ interest on CDs of up to 12 months and six months’ interest on CDs longer than 12 months). Ally Bank’s no penalty CD, by contrast, lets you withdraw funds from your CD anytime without a penalty. (Granted, you can earn a higher rate if you choose a regular CD over the no-penalty option).

Open an Ally Bank Deposit Account

Opening an Ally Bank can be accomplished online in about ten minutes.

Open an Ally Bank Account Online Now

Have you had a chance to save with Ally Bank? How was your experience?

How Much Money Should You Have Saved by 30?

David Weliver — Mon, 01 Jun 2009 15:15:55 +0000

One of the most common questions I get from readers (and curious acquaintances) is how much money should I have saved by 30? (Or by 25, 22, etc.) Of course, it’s always seemed to me to be a silly question, because everybody has totally unique financial, lifestyle, and career situations. Still, everybody loves benchmarks, so let’s try to find some.

“How much money should you have saved by 30?” is a rather oversimplified question. After all, having $50,000 in a savings account and $100,000 in credit card debt is a much different situation than having zero debt and $500 saved. Looking at savings alone, anybody would rather have $50,000 than $500. But most (smart) people would rather have $500 and no debt than a negative $50,000 net worth.

That said, I think a fair goal by the age of 30 (for those of you who are fortunate enough to be planning in their twenties), is:

No debt other than a mortgage and/or student loan debt. (That means no credit card debt, personal loans, or auto loans.)
Three months worth of living expenses saved in an emergency fund in a liquid high yield savings account.
A healthy retirement account. (For more about retirement savings, read: How much should be in your 401(k) at 30?)

Again, everybody is different, and age may not be the best milestone to use to compare your finances with your peers. (Still, people do). For example, somebody who spent most of their twenties in graduate or professional school may be just entering the workforce at 30. Somebody who has been working for twelve or eight years straight is obviously in a better position to have money stashed away by their 30th birthday.

When it comes to savings, the only absolute numbers you should focus on are specific savings goals (e.g. for a down payment, a new car, or a vacation) and your emergency fund. After that, you should simply save the biggest percentage of your income as you can muster, putting money first into retirement accounts like a 401(k) and Roth IRA. Then, what you do with your money is your decision. You can begin increasing your emergency fund, invest on your own, or pay down mortgage or student loan debt.

Should You Be Reluctant to Use Your Emergency Fund?

David Weliver — Mon, 11 May 2009 15:51:22 +0000

The goal of having an emergency fund is two-fold. For one, your emergency savings can replace your income (at least for a few months) should you lose your job. But an emergency fund has another equally-important function: to allow you to pay for large, unexpected, and unavoidable expenses without incurring debt or borrowing from other savings accounts (e.g., college funds or retirement plans). With the focus these days on the economy and job losses, everybody’s so intent on protecting their emergency fund in case they lose their job, they may be more willing to save instead of pay down debt, or even pay for an unexpected expenses from other sources like credit cards. Is this smart? Consider this example I received from a 28-year old reader:

I need $2,000 to retain an attorney for an upcoming child custody trial and between $1,000 and $2,000 more for all of the anticipated legal expenses. Here is my financial status:

$2,100/month net salary

$10,000 in low-interest credit card debt (under 5%)

$70,000 mortgage ($59,000 remaining balance)

$1,200 in an emergency savings account

$1,300 in a 529 savings account

$6,000 in a Roth IRA

$13,000 in a 401(k)

What’s my best route for coming up with this money? I’ve considered several options including a home equity line of credit, home equity loan, borrowing against my 401k, and a personal loan. I’ve also thought about cleaning out my emergency fund, but in the current economic climate, I’d rather leave that alone. I could also clear out the 529 savings account, since I have only just started and I have many years before that will be required.

Although this reader’s financial snapshot isn’t bad, especially in today’s economy and for being 28; you can see the pickle he’s in. His emergency fund is low, and draining it won’t cover the entire cost of this unexpected expense and will leave him vulnerable should he lose his income.

What are his options? Since rates are low, you could try for a home equity loan or line of credit and it wouldn’t be the worst idea. The only problems I foresee, however, is getting approved in today’s tough credit markets and that banks may not see the $11,000 in equity you have to be enough for a loan. Borrowing against a 401(k) is rarely a good idea since the loan comes due should you leave your job, meaning you’ll have to pay taxes and penalties if you can’t immediately repay the balance. Similarly, although you just started the 529 savings account, you would also have to pay taxes and a 10% penalties on an early withdrawal, so that $1,300 turns into more like $900.

Another option you have is withdrawing some principal from your Roth IRA. One of the beauties of Roth IRAs is that you can withdraw money you contributed to the fund anytime without paying taxes or penalties. Of course, you’ll also be sacrificing earnings during that time.

What I would do. I would lean on that Roth IRA for peace of mind in case you lose your income. I would drain the emergency fund for these legal expenses and look for other ways to come up with another $800 for the rest of the retainer. Anything around the house you can sell? Some part-time work you can pick up? You can even try negotiating with the attorney to see if he’ll set the retainer at $1,500 while you come up with extra funds. Then, slash your budget and/or pick up extra income to rebuild your emergency fund and pay for the additional legal expenses. In the worst case scenario, all of the options you mentioned are available to you, but my guess is you can get this expense paid for (and your emergency fund built back up) without touching your other finances.

What do you think? Would you drain your emergency fund to cover a big expense despite the economy or would you look at other options? What do you recommend this reader do? Let us know in a comment.

Online Savings Accounts Provide Benefits Beyond Yield

David Weliver — Fri, 03 Apr 2009 16:29:41 +0000

These days, savers are bemoaning the plummeting interest rates on online savings accounts. Just two years ago, rates were 4%, 5%, even 6%. Now most online savings accounts pay yields less than 2%. Although I did write about alternatives to high yield savings accounts, I still think everybody should have an online savings account. Here’s why:

Online Savings Accounts Are Separate

The top reason to have an online savings account—even if the interest rate falls to levels you could get at your own brick & mortar bank—is that the online savings account is separate from your checking account. When you put money into that savings account, there is a physiological barrier between that money and the funds you spend every day. Having those separate accounts makes it easy to pay yourself first and forget that savings even exists until you really, really need it!

Online Savings Accounts Are Liquid

Although some of the alternatives I mentioned (like CDs and social lending notes) are good for long-term savings, they’re not right for emergency funds and short-term savings because they’re not liquid enough. If you need money, it can take a while to get, and if you can withdraw it, you’ll probably lose out on some or all of the returns that you would have earned. A high yield savings account makes it easy to transfer funds to your bank account in two days or access cash instantly via ATM card if you’re in an emergency.

Online Savings Accounts are Insured

Like all reputable U.S. banks, online high-yield savings accounts are insured by the FDIC for up to $250,000 per account. That means your short-term savings won’t lose value or disappear—even if the bank should go under. In these rocky times, that insurance is more important than ever.

Ready to save? Compare several of the best online savings accounts now.

More About Closing Credit Card Accounts and Your FICO Score

David Weliver — Thu, 26 Mar 2009 14:37:10 +0000

One of the most common questions I receive via my contact form is: “Can I close old, unused credit card accounts without hurting my credit score?” Most often, the answer is no. Here’s why.

The majority (an estimated 65%) of your FICO score and your other credit scores (you actually have multiple credit scores—one for each credit bureau), is based upon two things: Your payment history and your utilization.

It’s easy to understand how payment history affects your FICO score. Pay on time; your score goes up. Pay late; your score will sink faster than the Titanic. Understanding debt utilization is trickier, and it’s where keeping old credit card accounts open as long as possible comes in.

Your Debt Utilization Ratio

Your debt utilization ratio is figured by dividing how much debt you have by how much total credit you have (i.e., the credit limits on your cards.) The lower, the better.

If you have no debt and several credit cards open, your utilization ratio is 0%. Have $10k in credit card limits and $9k in a combined balance? Your utilization is 90%. Sometimes, you can even have a utilization score of more than 100%, which will dramatically lower your FICO score. This can happen if:

You close a credit card account that still has a balance
Your credit card does not report your credit limit to credit bureaus (some don’t!)

Why You Want to Keep Old Accounts Open

Even if you don’t use an old credit card account, it can help your credit score by adding to your combined credit limit and, therefore, lowering your utilization score.

If you have just two credit cards open with a combined $5k credit limit and have a combined balance of $2,500, you have a 50% utilization ratio, and your FICO score may be suffering for it. If, however, you have two more credit cards with a $2,000 combined balance, you are using only $2,500 of $7k available and have a debt utilization ratio of 36% (better than 50%). Closing those old credit card accounts will certainly cause your FICO score to drop. (As a rule of thumb, try never to exceed 35% utilization. Keeping it under 20% is better, and under 10% even better).

A Final Note About Closing Old Accounts

There’s one final reason that closing old, unused credit card accounts may hurt your FICO score: The longer an account has been open, the more it helps your credit score (even if you’re not currently using it). Closing the oldest credit card account you have on record can reduce the length of your credit history, further hurting your score.

It’s your call: If the idea of open but unused credit card accounts really bothers you, then by all means close them. It’s silly to be a slave to your credit score, and if you continue a patter of long-term responsible credit use, your score is bound to soar to new heights. That said, if you are trying to get your score in the best possible shape in the near-term, it is better to keep those old accounts open.

Two Alternatives to High Yield Savings Accounts

David Weliver — Fri, 06 Mar 2009 17:08:15 +0000

Anybody with a high yield savings account knows that the rates on these accounts have been plummeting recently. Many of them, including ING Direct, now pay less than 2% interest.

While some, including top-rated FNBO Direct, continue to pay competitive rates (as high as the market will allow), you can’t expect your cash to grow substantially in these accounts. Although I still highly recommend FNBO or a similar online savings account for short-term savings (such as your emergency fund or surplus checking funds), if you are going to be saving money for a few years, it may be time to look beyond the savings account.

Alternative #1: Certificates of Deposit (CDs)

Typically, I don’t recommend CDs for our age group. That’s because CDs require you to lock in your money for a set term to get the advertised interest rate, and many have high minimum deposits. In our twenties, most of us don’t have large piles of cash to meet CD minimums and, if we do, we want to have access to that cash for an emergency.

When high yield savings accounts paid 6.x%, 5.x%, even 4.x% interest rates, I told everybody to steer clear of CDs. Now, if you have more than a couple thousand dollars in savings and you know you won’t be touching it for a year or longer, look to a CD to at least get a bit more risk-free return. Some CDs currently offer 3.x% interest rates; a few pay more. You can compare CD rates at BankAround.com.

Alternative #2: Social Lending

CDs and high yield savings accounts are FDIC insured (i.e., risk-free). I wouldn’t recommend anybody put short-term or emergency cash into the stock market (especially now), but if you are saving for three years or longer, check out social lending. If you’re not familiar with the concept, you essentially loan money directly to other people with good credit histories at interest rates of about 7% and higher (the higher the rate; the riskier the borrower). By diversifying across many loans (say $50 here, $50 there), you can earn an attractive return approaching 10% even if one or two borrowers default. Create a free lender account at Lending Club or read my Lending Club review.

What About You?

Are you moving away from high yield savings to an alternative or are you keeping your money where it is? Let me know!