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!