Author Topic: Low interest rate on savings accounts  (Read 713 times)

180_FromEvil

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Low interest rate on savings accounts
« on: December 07, 2017, 04:31:55 PM »
Hello all. Since I just paid off my $12k in student loans I am more aware of the shit interest my emergency fund gets. As I build it back up to 6 months of assets, is there anywhere else to stash a portion to collect more interest?  I was planning on keeping $4k or so in straight savings and maybe dump the rest into a Vanguard bond fund or something. Ideas?
Thanks

laserlady

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Re: Low interest rate on savings accounts
« Reply #1 on: December 07, 2017, 06:50:20 PM »
I keep my emergency fund at Dollar Savings Direct (an online division of Emigrant Bank).  They consistently have decent rates -- maybe not always the very top of the market, but consistently competitive.  The APY is currently 1.5%.

CanuckExpat

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Rubic

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Re: Low interest rate on savings accounts
« Reply #3 on: December 08, 2017, 09:22:49 AM »
With a little work, you can park up to $15K at Lake Michigan Credit Union
for a 3% rate:  https://lmcu.org

Here are the criteria to qualify for the 3% rate in an LMCU Max Checking account:
  • Sign up for e-statements.
  • Minimum of 4 logins to online banking per month.
  • Minimum of 10 debit card purchases per month.
  • Direct deposit in your account at least once per month.
I have my LMCU account linked to Mint.com, which handles the minimal required logins.

On the first Monday of each month, I reload my Amazon gift balance
with ten purchases of $0.50 each for a total of $5.00 to satisfy my debit
card requirement.

I also transfer $5 each month from my primary checking account into LMCU via
an automated ACH transfer which counts as a direct deposit.

The entire process takes less than 10 minutes each month after you've
got your account set up.  LMCU has a nice link on your account page to
confirm you've met all the requirements to qualify for the 3% rate.

Ms.Fortuna

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Re: Low interest rate on savings accounts
« Reply #4 on: December 09, 2017, 10:20:39 AM »
Rubic, can you explain what “Amazon gift balance is? is it a gift card? And how do you reload it?thanks!

Rubic

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Re: Low interest rate on savings accounts
« Reply #5 on: December 10, 2017, 07:45:48 AM »
Rubic, can you explain what “Amazon gift balance is? is it a gift card? And how do you reload it?thanks!

If you view your Amazon account online, you should see a section for
gift cards.  That link should allow you to then purchase, redeem, and
reload your gift card balance.

Ms.Fortuna

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Re: Low interest rate on savings accounts
« Reply #6 on: December 10, 2017, 02:52:49 PM »
Rubic,  thanks! What a neat idea!

ILikeDividends

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Re: Low interest rate on savings accounts
« Reply #7 on: December 10, 2017, 03:43:58 PM »
With a little work, you can park up to $15K at Lake Michigan Credit Union
for a 3% rate:  https://lmcu.org

Here are the criteria to qualify for the 3% rate in an LMCU Max Checking account:
  • Sign up for e-statements.
  • Minimum of 4 logins to online banking per month.
  • Minimum of 10 debit card purchases per month.
  • Direct deposit in your account at least once per month.
I have my LMCU account linked to Mint.com, which handles the minimal required logins.

On the first Monday of each month, I reload my Amazon gift balance
with ten purchases of $0.50 each for a total of $5.00 to satisfy my debit
card requirement.

I also transfer $5 each month from my primary checking account into LMCU via
an automated ACH transfer which counts as a direct deposit.

The entire process takes less than 10 minutes each month after you've
got your account set up.  LMCU has a nice link on your account page to
confirm you've met all the requirements to qualify for the 3% rate.

Your monthly $5.00 purchase amounts to the monthly interest you would earn on $2,000.00 at an APR of ~3%.  So your first $2,000 will never earn any interest.

Additionally, if your emergency fund is not in a tax advantaged account (it shouldn't be), then it's even worse than that; e.g., you have to pay taxes on interest paid on the first $2,000, without being able to write-off the $5 spending each month.

Why not put it into a high income fund, like SPHIX, PONDX, or SAMH (just for instance), where you could earn north of 5%? It's not a fixed guaranteed rate, but it's paid monthly, and compounds faster.

Sure, its unit price fluctuates, but typically only by a penny or two, and it seems to go up more often than it goes down.  It's certainly less work.  Ten minutes a month isn't a lot of work, admittedly, but you're also giving up the interest you would earn on $2,000 every month, and paying taxes on it as if you had net-received it.

Real world example: I put $20K into SPHIX 14 months ago, and it's worth nearly $22K now ($21,941.18), with dividends reinvested; about an 8.26% APR equivalent (that includes a 2.86% appreciation in the unit value over 14 months). If the unit value had, instead, gone down by the same percent my compounded return would still be "only" 5.6% APR.

That's after accounting for the $75.00 transaction fee Schwab charged (not all brokerages charge a fee on SPHIX).  There is no fee for selling, after a 3 month holding period.
« Last Edit: December 10, 2017, 05:19:59 PM by ILikeDividends »

Rubic

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Re: Low interest rate on savings accounts
« Reply #8 on: December 10, 2017, 06:17:42 PM »
Your monthly $5.00 purchase amounts to the monthly interest you would earn on $2,000.00 at an APR of ~3%.  So your first $2,000 will never earn any interest.

@ILiveDividends:  Thank you for your post, but I disagree.

The $5 in debit purchases are simply applied toward my monthly
purchases at Amazon ($25-30 per month).  It's a wash.  I'm not
throwing that money away.  The only thing it costs me is about
5 minutes per month for the online transactions.

Regarding your suggestions for high income funds: that is not
the equivalent of parking cash in a bank or credit union backed
by FDIC/NUCA insurance.  I'm not criticizing you for putting your
money in income funds (or even bitcoin, if you prefer), but you're
comparing apples and oranges.

Best regards.

ILikeDividends

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Re: Low interest rate on savings accounts
« Reply #9 on: December 10, 2017, 06:32:38 PM »
Your monthly $5.00 purchase amounts to the monthly interest you would earn on $2,000.00 at an APR of ~3%.  So your first $2,000 will never earn any interest.

@ILiveDividends:  Thank you for your post, but I disagree.

The $5 in debit purchases are simply applied toward my monthly
purchases at Amazon ($25-30 per month).  It's a wash.  I'm not
throwing that money away.  The only thing it costs me is about
5 minutes per month for the online transactions.

Regarding your suggestions for high income funds: that is not
the equivalent of parking cash in a bank or credit union backed
by FDIC/NUCA insurance.  I'm not criticizing you for putting your
money in income funds (or even bitcoin, if you prefer), but you're
comparing apples and oranges.

Best regards.
Unfortunately, I can find nothing to argue about with your reply.  ;)

For the record, I have $0.00 invested in bitcoin.

If FDIC/NUCA insurance is a priority for you, then you've got a pretty slick method for milking a significantly better APR out of those available.

Cheers.
« Last Edit: December 10, 2017, 06:51:11 PM by ILikeDividends »

Rubic

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Re: Low interest rate on savings accounts
« Reply #10 on: December 10, 2017, 06:52:11 PM »
Unfortunately, I can find nothing to argue about with your reply.  ;)

For the record, I have $0.00 invested in bitcoin.

Cheers.

Thanks.  The bitcoin comment wasn't meant to be snarky, btw.

I'm genuinely happy for the folks that have made some money
off bitcoin, and genuinely concerned for the folks who are just
now buying into it.

ILikeDividends

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Re: Low interest rate on savings accounts
« Reply #11 on: December 10, 2017, 07:03:55 PM »
Unfortunately, I can find nothing to argue about with your reply.  ;)

For the record, I have $0.00 invested in bitcoin.

Cheers.

Thanks.  The bitcoin comment wasn't meant to be snarky, btw.

I'm genuinely happy for the folks that have made some money
off bitcoin, and genuinely concerned for the folks who are just
now buying into it.
It wasn't received as a snarky comment.

I, too, am happy for any bitcoin speculators who have or can pull it off.  I know what a bubble is.  I've seen one or two in my lifetime.  So I equally regret what's going to happen to those who risk too much and get caught in the bubble.

But I don't regret that I am a no-show at the bitcoin party, and I will remain a no-show no matter how high it goes.

I enjoy a hot craps table, a good game of single-deck blackjack, or a streak in Texas hold 'em. I've won and lost in all three.  But I'll never put more than my entertainment allocation into those games.  With bitcoin, there is no game; there's just the bet.
« Last Edit: December 10, 2017, 07:36:22 PM by ILikeDividends »

CanuckExpat

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Re: Low interest rate on savings accounts
« Reply #12 on: December 10, 2017, 07:36:29 PM »
Before you jump through hoops for 3%, remember you can get 5% on up to $5,000 through Insight Savings: https://www.doctorofcredit.com/insight-5-apy-prepaid-card-5000/

That's $10,000 for a couple, more if you have more adults.
Ibonds are also a good consideration: http://www.mymoneyblog.com/savings-i-bonds-november-2017-interest-rate.html
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Timodeus

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Re: Low interest rate on savings accounts
« Reply #13 on: December 11, 2017, 07:09:14 AM »
Before you jump through hoops for 3%, remember you can get 5% on up to $5,000 through Insight Savings: https://www.doctorofcredit.com/insight-5-apy-prepaid-card-5000/

That's $10,000 for a couple, more if you have more adults.
Ibonds are also a good consideration: http://www.mymoneyblog.com/savings-i-bonds-november-2017-interest-rate.html

This topic is great, giving me some great (and safe) ideas to wiggle some extra cash from my large overly cautious emergency fund. I can confirm i-bonds are great and aren't what most people mean when they talk about "bonds". The price for the bond doesn't fluctuate, only the interest rate does according to the inflation rate. It's more like a special kind of variable rate CD than a bond.

I plunk a third of my emergency fund in them and they are a good way to protect that cash from inflation. I eventually will use them to help pay for my child's college education (using them for education makes the built up interest tax free) assuming I don't use it first for an emergency.

Rubic

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Re: Low interest rate on savings accounts
« Reply #14 on: December 11, 2017, 07:12:58 AM »
@CanuckExpat: Good point!

I used to use the NetSpend family of cards (Brinks, NetSpend, etc.) for their
5% interest, but dropped out when they lowered the max account balance from
from $5K to $1K.

Here's a fairly recent article about setting up an Insight account:

https://financialpanther.com/insight-card-5-percent-interest-savings/

katsiki

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Re: Low interest rate on savings accounts
« Reply #15 on: December 11, 2017, 07:15:15 AM »
Before you jump through hoops for 3%, remember you can get 5% on up to $5,000 through Insight Savings: https://www.doctorofcredit.com/insight-5-apy-prepaid-card-5000/

That's $10,000 for a couple, more if you have more adults.
Ibonds are also a good consideration: http://www.mymoneyblog.com/savings-i-bonds-november-2017-interest-rate.html

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