Have you heard of online high-yield checking and savings accounts before? It took me a while before I heard about them. Let me elaborate…
Have you heard those crazy stories of people that retire at age 30 just because they saved money and penny-pinched? I bet you rolled your eyes afterward. Yep, me too.
Naturally, I was curious and I knew they must be doing more than just saving money. I did some research and found that the bank accounts where they keep their money was actually a huge aspect of their financial success. They often use online high-yield checking and savings accounts.
There are so many banks out there, I thought, how could it really make that big of a difference?
That’s when I read the book I Will Teach You To Be Rich by Ramit Sethi and found out what online high-yield checking and savings accounts were.
See it on Amazon here!
What are Online High Yield Checking and Savings Accounts?
They are banks that operate fully online. Because they operate fully online and don’t deal with the overhead costs of owning many brick-and-mortar locations, they are able to provide high-interest rates and less or no fees.
Ok, so if you’re reading this and you didn’t just graduate from college then you are probably from my parent’s generation where skepticism reigns on this topic.
However, there are so many amazing benefits to opening online high-yield checking and savings accounts.
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During college, I was banking with J.P. Morgan Chase because it was a top bank in the Chicagoland area. I wasn’t paying attention to interest rates or fees. I just had these bank accounts out of convenience. Little did I know I could actually be losing money by keeping my money in these standard checking and savings accounts!
Why I switched to Online High-Yield Checking and Savings Accounts
1. You have hidden costs at a traditional or neighborhood bank…
Let me break it to you: banks are trying to take advantage of you.
Yes, they know you are uneducated and don’t know a thing when it comes to monthly fees, interest rates, or overdraft protection.
Banks make their money by charging huge amount of fees for silly things, and I bet you don’t even notice them half the time. Ever overdraft before? Yep, then it’s likely you got hit with a fee.
One reason I loved switching to online banks is that they often charge very little or no fees and have hardly any downsides. I’m currently with Charles Schwab’s High Yield Checking Account which offers me no monthly fee, no minimum to maintain that no monthly fee, unlimited ATM rebates, and no foreign transaction fees! Compare it to other banks here: https://www.schwab.com/public/schwab/banking_lending/checking_account/
Their banking is very simple, and straightforward, and even offer rewards too. Because they don’t pay tellers or store location costs, they don’t have to charge fees and are also able to offer higher interest rates.
This brings me to…
2. You are actually losing money due to inflation!
I never realized this until recently and that makes me ask, “Why is no one teaching us these valuable tips in high school and college?!”
If you keep your saving in a typical Chase Savings Account, for example, then you are only earning a 0.1% or even let’s say a 0.5% interest rate; however, the rate of inflation today is about 3%.
That means your money is slowly depreciating in value and you could be losing 2.5% of what you earn. Pretty scary if you think long-term.
That’s why I switched to Citizen Access’s Online Savings Account where I get a 2.25% annual percentage yield on my money. This is six to ten times higher than your neighborhood bank. I knew I had to switch so that my money is growing and not depreciate.
Before you choose which online savings account to go with, make sure you compare them here at www.bankrate.com. (This site is also a great place to compare credit cards and mortgages!)
You need high-interest rates on your money to build wealth. I was missing out on potential income during the last few years by thinking convenience was the answer. These are found through online high-yield checking and savings accounts.
I Will Teach You To Be Rich was a great resource for me to learn about online banking accounts and their higher interest rates.
Related Post: How To Create Your First Successful Budget After College
3. You have more opportunities to link an investment account at online banks…
I love my Schwab Bank Investor Checking Account because not only does it have a high percentage interest rate but it also links to a Schwab One Discount Brokerage account.
This makes it very easy for you to set up a Roth IRA or investment account when you are ready. You also have the option to not use it all if you have another discount brokerage account.
4. You can set up saving categories in your High Yield Savings Account!
Often online saving accounts will give you the option to sort your savings into multiple categories and boy, oh boy does this make it a lot easier to track.
Here are some examples of savings categories I have: emergency fund, new car, down payment, wedding fund, travel fund, and Christmas/birthday gifts.
I used to just throw money into my savings account and hope I used it for the right thing when it came time.
However, just like basically everything in life (as I teach in almost all my blog posts) it requires intentionality in order to make your goals happen.
If I am not intentional with putting money into each of these savings categories each month then I will not be able to accomplish these goals in a quick enough time period.
Without a goal and focus, there is no value to your money sitting in your savings account.
First, make sure you are putting 3-6 months of living expenses in your savings account. This is your emergency fund and is where you should begin your goals. Always replenish this first.
Second, consider your next priority when it comes to financial goals. Do you need a new car soon? Do you want to save for a down payment on a house? Or do you want to save for your next dream vacation? Whatever it is, make sure you write it down and make it a financial goal.
Remember, these things should all be coming after you have paid off debt and thrown money at that first. Debt is not listed in my savings goals because I only have a few student loans left, and right after the money hits my bank accounts every other week from my paycheck it goes directly toward those loans. I don’t let it sit in a savings account and then pay it off. I send the money there straight away.
Third, weddings and gifts can be another huge expense for many people to begin saving for those things. These should never be a cause of going into debt. Act within your means when spending money on a wedding or on gifts.
Once you’ve set up your savings goals it’s time to set up an automation system with your bank accounts, where money gets transferred directly out of your checking account into your saving account categories so you don’t even know it’s gone.
Then sit back and watch your money grow and your financial goals come to life.
5. Online High Yield Checking and Savings Accounts are free accounts…
So let’s remember, you shouldn’t be paying fees or minimums on any of your checking or savings accounts. It is a waste of money when there are so many banks with high-interest rates that waive both these things.
Another tip to remember is that almost all monthly fees can be waived. Call your bank and negotiate with them. There is almost always a way to get rid of the fees on your account. Don’t waste your money on those.
So Are Online High Yield Checking and Savings Accounts Right For You?
Before you jump into switching banks make sure you first know the basics of a savings account versus a checking account. This goes for all banks, not just online high-yield checking and savings accounts.
Savings accounts are where your money sits and grows. In this account, you are not typically taking money out of this account unless you are in an emergency. You can still access the money easily, but in your head, you should not make accessing it an option unless absolutely necessary.
Checking accounts are made to have frequent withdrawals. That’s why you have a debit card linked to them and are able to access ATMs. You can use this account to pay your credit card and other bills.
You need both a checking and savings account because they work together. It operates hand in hand: saving for your future and financial goals, but also the ability to move money around quickly. Savings accounts and checking accounts do not necessarily have to be at the same bank, because today it is so easy to link the accounts no matter where you signed up for each one.
In fact, if you have a problem withdrawing from your savings account often, it may be beneficial to have it at a different bank so you can avoid seeing it every time you log into your checking account. One way to save money is a set-it-and-forget-it mindset.
I cannot stress enough, it is so important to develop the right habits NOW while you are in your 20s.
Saving now, paying off debt now, and investing in your future is setting yourself up for success. If you’re waiting till you’re 30 or 40 to start taking this money stuff seriously, then sorry, but you’re actually the one missing out and losing. Your friends may seem to be having more fun when you say no to big trips or fancy things, but you’ll be the one rich in the end, both physically and mentally.
Action Steps You Can Take To Set Up a High-Yield Checking and Savings Account
A lot of these tips come directly from the I Will Teach You To Be Rich book mixed with my personal experience. They are what I used to set up my accounts.
Find the accounts that are best going to work for you and your lifestyle. I can recommend these accounts, but it is up to you to take a look at your finances and decide if switching banks is the best thing you can do for your financial freedom. Then confirm that your bank has no minimum and no fees. Be aggressive in negotiating these as well. Ramit Sethi in his book suggests checking out www.bankswitcher.com.
Set up your online high-yield savings account. I was able to apply for mine online and deposit a check immediately. Compare banks at www.bankrate.com. The bank I currently have Citizen’s Access Online Savings Account.
Next, set up your online high-yield checking account. If you want an account that will give you a higher interest rate and fewer fees then this is the way to go. I use Schwab High Yield Investor Checking Account just like Ramit Sethi and I have loved it so far. It is easy to access and navigate.
Then set up your savings goals and begin funding them. Set up an automation sequence where you deposit the same amount each month from your checking account to your savings account. Watch your savings grow faster than ever before in your life. This can be as little as $20. It will still grow and add up faster than you noticed and you will hardly notice the money leaving your checking account in the first place.
Want more? Read Ramit Sethi’s book here. I deemed it the best book I read in 2018 and I read a lot! This is just one step in his six-week course of financial freedom and building financial wealth. He also has lots of free information on his website, which I have found very helpful in getting my finances straight.
See it on Amazon here!
The process of financial freedom is not necessarily an easy one. It takes time, dedication, and a lot of intentionalities. But, it’s also not as daunting as you may think. If you made it through this blog post then you are ready to take action.
What financial steps are you going to take in the upcoming months to get you closer to saving and investing??
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Kelsey at GoodPointGrandma
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I’ve been thinking about switching to a new savings account and this post just convinced me! Our savings interest rate right now is so low (it’s the same account I’ve had since high school and it’s just not working for us anymore!) This post was so helpful!
That’s amazing Taylor! I have never regretted making the switch!
I definitely do wish I had thought about this right out of college. I figured I had a bank account, I was putting money into a savings account, so I was good. But then I realized my savings account was SO low interest and I could have been doing so much more with a different bank! Lesson learned.
I think we all learn that lesson at one time or another (:
Setting up financial goals, and woking towards them to attain financial freedom is really important that most of us often ignore. I love these tips.
Amen! Thanks Hina!
Someone rich once told me they best way to make money letting your money earn it for you, and having a high-yield savings account definitely helps with that! I love mine, and am always impressed with my monthly interest when I check my finances.
That is wise advice! Yay, so glad you are on top of it Kait.