A friend of mine called me up today. He asked me about where he could find a better interest rate on money in a bank account. As I work in the financial field, it also reminded me how many of our clients have similar questions, and how many people leave money on the table when it comes to the money in their banks.A little primer on inflation: Some people actually still hide money "under the mattress" in a place where it accumulates no interest. They are losing money every single day, in a very real way. Due to inflation, the money you have today will be worth slightly less tomorrow. In the US, annual inflation averages around the 3-4% range. So if it is 4% this year, that means that $1,000 today will be effectively worth $961 next year if it just sits under your mattress. It will still be $1,000 if you count it, but will only buy $961 of today's goods. Thus, in order to keep your money's value stable, you need to earn 4% on that money in the next year. Anything less and you'll be losing money, and anything more and you'll be gaining money.
Some countries have terrible inflation problems due to bad policy (usually from dictators or highly corrupt governments). Take a look at this heat map around the world, and you will see what I'm talking about. The worst inflation by far is in Zimbabwe, and it just reached 2.2 million % per year! In other words, if it costs you $1 to buy a loaf of bread today, it will cost you $2.2 million to buy that same loaf of bread next year. And we panic when we get close to 5%... This horrible inflation is a direct result of the country's president, Robert Mugabe, and his corruption and nationalization campaigns for the last 20 years. What was once one of the richest of African nations is now in financial ruins.Ok, so you need to keep up with inflation as best as you can. But if inflation is at 4%, and your bank's checking account only pays less than 1%, you're losing at least 3% of your money in the bank each year. How do you stop the bleeding?
One option that I like is the direct online savings accounts. Big real banks start online-only branches that give you very little service and have everything done electronically. Thus they avoid buildings, employees, and most all other costs. Then they give you a higher rate on your savings account than in their regular "bricks and mortar" banks. Right now you can get rates between 3% and 3.5% at some of these online savings accounts. They have links to your regular bank account and you transfer money back and forth as you wish. They typically have no fees, no minimums, and no restrictions.
If you want to look at a few for reference, try www.ingdirect.com, www.emigrantdirect.com, and www.hsbcdirect.com. And if you want to keep at least $1,000 in as a minimum, you can get a little higher rate at www.dollarsavingsdirect.com, which is also owned by Emigrant Bank. Make sure that where ever you put your money it is FDIC insured in case a bank implodes, and always read all the fine print when it comes to putting your money anywhere.
