Posted by BRIAN PRZYSTUP & ASSOCIATES LLC

Increasing Your Banks Returns by 2%: Is it possible?

Increasing Your Banks Returns by 2%: Is it possible?

Earning microscopic interest to all that cash sitting like a slug in your bank account is quite well known to all of you. A wealth manager at Aldrich Wealth in Carlsbad, Calif, Stephen Nelson know where to earn interest that's as high or higher than inflation places and places where you can park your hard earned money.

Why do bank accounts pay so little?

Stephen Nelson: According to the most recent data of Federal Reserve, household savings in the U.S. have increased to $1.1 trillion from a 2005 low of $274 billion. Compared to before, American are stashing more cash in their saving and checking accounts. 

The interest rates the bank paid on savings deposits are proudly displayed when I was going up. Through this, we can see that our family's savings are working just as hard for us as we do for it. The Fed slashed interest to zero in order to stimulate the economy so the interest rates disappeared during the '08 and '09 financial crisis.

Interest rates your bank pays to depositors didn't keep pace with the rate increase even if the since 2015, Fed has slowly increased short-term interest rates between 2.25% to 2.5% per year to where they stand today.

With a rising rate environment, you have more money in your savings account which is a good thing for a saver like you. And yet, what you earn on your cash accounts hasn't changed. 

Big banks could be paying their depositors higher interest rates but are not choosing to.   Low or "non-interest bearing deposits" are what the banks call your saving accounts. Banks take deposits and invest them in short-term Treasury bonds which they can earn the spread for themselves and 100% risk-free. 

By opening an online account, you can earn at least 2% on your savings with very little effort. These accounts pay the rates you should be receiving from your local bank and these are also available online. To start earning your interest, simply open an account and link your current bank account. 

Ally Bank, Marcus by Goldman Sachs, and American Express are some of the best options. For example, on your $15,000 cash for a year, you can earn $330 since Ally Bank's Online Savings is paying 2.20%.

Online savings banks are as safe as a bank account that you would open in a physical bank in your area. For each account ownership category, banks are insured by the FDIC so all deposits are insured up to $250,000 per depositor. 

You can access the money at any time since these deposits are not locked up like a CD. To transfer money from an online savings account banks into your checking, it will usually take one to two business days. 

For your daily purchases, you should not, and can't use them since these online accounts are mainly for your savings. The federal law limits up to six transactions per statement cycle which is about a month but you can make as many deposits as you would like. 

Your savings account currently at your local bank can be replaced by these online accounts. For direct deposits from your employer and writing checks or making purchases using the checking account at the local bank is highly recommended.  

Lastly, keep in mind that the secret to increasing your savings, regardless of how you’re going to save it (emergency fund or another savings account) is to pay yourself first. Before you pay anything else, make sure you put the money into a designated savings account.

BRIAN PRZYSTUP & ASSOCIATES LLC
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