Guest post by J.D. Roth from Get Rich Slowly
Five years ago, I had over $35,000 in consumer debt. I was living paycheck-to-paycheck even though I had a decent salary. Since then, I've managed to turn things around, and am now debt-free except for my mortgage. I've even begun to save some money!
I didn't get out of debt overnight, though. It took a lot of work. I clipped coupons, I bought from thrift stores, and I sold a lot of stuff at garage sales. I learned how to be frugal. But I also learned how to save my money in a bank–something I had never done before. I'm here today to encourage you to save, too, and to show you two great ways to do it.
Rewards checking
Right now, the best interest rates in the U.S. can actually be found through special rewards checking accounts at local banks and credit unions. Different banks have different names for this service. Where I live, one credit union calls it a Fusion Checking Account and offers a 4.25% APY. Another simply calls it Rewards Checking and offers 3.75% APY. Other banks around the country are currently offering up to 6.01% APY.
Obviously, these rates are fantastic. There aren't many places you can earn a guaranteed 6% return on your money. Unfortunately, there are a few catches. These rewards checking accounts usually come with some combination of the following limitations:
- You must receive your monthly statement electronically–not via snail mail.
- You must log into your account at least once per month.
- You must make a certain number (generally around 12) debit card purchases. (ATM withdrawals do not count toward this number.)
- You must make at least one electronic transaction each month. These include automatic payments to your utilities, for example, or a direct deposit.
- The rate only applies to the first $30,000 (or so) in your account. (The cap at some banks is $10,000; at others, it's $100,000.) The portion in your account above the cap only earns a tiny return.
If you use your debit card often, a rewards checking account makes a lot of sense. You can read more about these accounts at My Money Blog. Better yet, here's a huge list of rewards checking accounts by state. (Those listed with a red asterisk are available nationwide.)
Online savings
Another great option is to open a high-yield online savings account. This is the route I chose for my savings.
For me, the advantage of an online savings account is that the money is completely separate from my everyday checking. If I want to access the cash, I have to go through the process of transferring it from the online account to my local bank. This may seem like a hassle, but in this case that's good; it prevents me from spending the money recklessly. Another advantage is the ability to set up automatic monthly deposits, which helps me to save on "autopilot".
The bank I chose was ING Direct, which is very popular with the readers of my personal finance blog. Its rates are generally modest, but the customer service is excellent. Best of all, ING Direct allows me to set up multiple accounts. I have one account to save for emergencies, one to save for a new car, one to save for Christmas, and one to save for vacation–and I can track them all from the same screen.
ING Direct is not the only option, though. There are many great online banks with good interest rates, which you can research in this list of the best savings accounts.
I am a huge fan of clipping coupons, shopping at thrift stores, and learning to make your own food. These things save money and offer a great deal of satisfaction. But I've also discovered that it pays to keep my savings someplace that will pay me interest.
For more information about saving and investing, visit Get Rich Slowly, where you can read about topics like how to get out of debt, how to earn extra money, and how to save at the supermarket!
chb says
Two of the best (in my opinion) personal finance blogs have come together for a great post! MSM, I hope you do a post on GRS too!
flutemom says
any ideas about doing this for a child? we tried before to go with ING for our daughters’ accounts but you run into legal things when you’re working with someone under the age of 18. we would have had to set it up as a trustee account or something like that, meaning that we would have been responsible for the interest on their accounts when we file our taxes for the year.
Constance says
I found a reward checking account for my area listed at money-rates.com that is paying 6.01%. The rate is only good for 25K but I don’t keep that much in checking anyway. Thanks for the report.
Chris from St. Mary's says
I found you indirectly through GRS when I had just gotten out of debt. Both have been helpful in helping me to build up my savings account — partly through ING, partly through couponing, partly through switching from a big boy bank to a local CU, partly through working to cut other bills. These lessons have been very helpful.
I recently inherited money. It gave me a chance to research again where was the best place to keep the money while I grieved and discerned how to best use this for God’s glory (the death was recent). In the end, I decided to go with a high-yield savings account with my local CU. Their interest rate is comparable and more stable than ING’s as of late.
But GRS taught me to research-research-research and not go with a local bank just because it’s down the road from your house. Not all banks and CUs are created equal. I’m glad I learned these lessons before and am not trying to do it now (or not even think about trying to find them) in my current situation. Sadly, I have a sibling who is using a “different” approach to the same windfall (like, let’s buy a brand new SUV! Yippee!).
Finance Girl says
That’s interesting that the interest checking accounts have higher rates than online savings accounts. Lord knows my Emigrant Direct account is only earning 2% interest, but I like having it separated from my regular spending money.
Thanks for the guest post from J.D. Love Get Rich Slowly!
ScoringDeals says
Thanks for the post! It was very informative!!
Melissa C. says
Great article! One thing I’d also like to suggest is to join a credit union. Since they are tax-exempt and not-for-profit, you’ll almost always get higher rates than banks, plus lower rates on loans!
Many ppl worry about lack of ATMs but many of them are part of networks that give you free access to thousands of surcharge-free ATMs. For example, my credit union is a member of Allpoint, whose ATMs are in every Target and Costco, among other places. In total, they have 57,000 ATMs or something close to that.
I haven’t “banked” with a bank in over 7 years and don’t miss it one bit!
HelpingUBank says
The high APY for rewards checking accounts is definitely worth it. You can’t expect to get a reward without earning it, right? That’s just how I feel, and besides, most people meet those requirements anyway. One of the better accounts I’ve seen is from Coulee Bank in WI. It offers 5.01% APY and the best part is it is available nationwide (most aren’t). Here’s their website: http://www.CouleeBank.net
Any other accounts above 5%? I would live to hear about them.
TargetWidow says
I love Get Rich Slowly, too. It’s a great resource, thanks for the guest post.
Meagan says
I am a HUGE fan of ING Direct! I have had an online checking account with ING for over 3 years and opened a savings account with them the first week it was offered. I love the automatic savings plan and the rates. It is also very easy to transfer money.
tina b says
Thanks for this post! It was super helpful!! 🙂
Michele says
I just discovered Get Rich Slowly about a month ago and am enjoying it so far, especially their forum. I like this type of blog as a balance to many of the coupon clipping blogs out there. It goes beyond just saving money on groceries to get out of debt but how to invest money as well. I started a similar blog a few months ago, but from a different perspective because I’ve never been in debt but have always been a saver. Thanks, J.D.!
Shellie says
I’m so glad you posted this! Get Rich Slowly is one of my favorite blogs. He provides lots of very useful advice. He had a wonderful planting your own garden post that I linked to this week on my own blog. He is a wealth of all kinds of wonderful information.
Emily says
Great Post – Thank you. We have our emergency fund collecting very little interest in our bank savings account. We have been trying to decide what to do with it so that it is risk free but also pays us more interest. You have outlined some very do-able options for us.
Also, I like the idea of tracking separate savings accounts. I no longer make a car payment and want to continue ‘paying’ myself – other stuff too.
Thanks again!