High Yield Savings Accounts

It's Frugal Friday time again, and this time I want to talk about something that hasn't necessarily *saved* us any money, but rather has earned us money.

Like most people, my husband and I used to keep our savings in a traditional bank savings account. When I worked for one of the "mega" banks before our wedding, I even was able to get a free money market account with them. But thanks to my father-in-law (and then later, Clark Howard), we learned about Emigrant Direct and bankrate.com.

Currently, Emigrant Direct pays 5.05% interest on their savings account -- with NO minimum balance and NO maintenance fees. The only catch is that they only operate online, so there are no brick and mortar locations. It also takes a couple of days to transfer money out of the account, but that's no big deal if you keep a close eye on your finances.

Emigrant Direct is not the only major bank offering these high rates (and they don't even have the highest rate). If you go to bankrate.com you can see a whole list of the top rates being offered today. Some of the banks might even be local ones with an actual building in your area -- you never know until you check! Bankrate.com will also show you the rating of each bank, from one to five stars. The rating measures the safety and stability of the institution.

The bank I previously had my savings account with paid 0.3% for their money market account if you had a balance of less than $10,000, and only 1.00% if you had less than $50,000. So let's do a bit of a comparison. Let's assume we put $2,500 into both banks (that is the minimum balance for the "mega" bank account). After one year at the "mega" bank we make 0.3% of the $2,500, which is $7.50. Compare that to the 5.05% at the high yield savings account. The same money is sitting in the account for the same length of time... but instead of making $7.50 we make $126.25. Now think for a minute what you could do with that extra $118.75.

But to be fair to the "mega" bank, let's up the money we keep in the account to $10,000. This way we get the higher rate of 1.00%. Again, after a year at the "mega" bank you make $100. Not bad... but we made more than that at the high yield savings bank with a quarter the money invested. And if we had put the $10,000 into that bank from the beginning, we would have made a whopping $505.

And a final example, from the other end of the spectrum. Let's say that all you can put in your account for the year is $50. If you put it in the "mega" bank's savings account, you would earn $0.15 for the whole year. EXCEPT that you would be charged a maintenance fee of $12 *each* month. So instead of having $50.15 at the end of the year, it would be more like $-94. If you put it in another of this bank's account that has a minimum balance of $300 instead, you would have earned 0.2% interest, or $0.10 for the year. Except that you would have been charged $36 in maintenance fees. So you'd have something more like $15 in your account by the end of the year. At a high yield savings bank, on the other hand, you would have made $2.53. Sure, that's not huge amounts of money... but it's much better than "making" $0.10 and then losing $36.

For what it's worth one of the online high interest banks, HSBC, is offering a 6% introductory rate on all money put into their accounts from now until April 30th. On May 1 the rate will drop back down, but it's really a great offer -- better than most CD rates right now, but you don't have to leave the money there for a certain number of months/years.

To make my dad feel better, I'm going to make a point here about being a responsible online banker. Here are some easy-to-follow rules that will help you protect your money:

1. Make sure you have a GOOD password. By good, I don't mean something like fun4you or your husband's middle name, or even something like H@rm0ny where you replace letters with numbers or characters. Hackers KNOW that people do this, and they have made their hacking programs check for these sorts of things. A good password would be, for example, the first letters from an easy-to-remember (for you) phrase. For example (and note that I have never, nor will I ever, use this one): ItbGcthateG1:1 -- from "In the beginning God created the heavens and the earth. " Genesis 1:1. *Currently* hackers do not check for these sorts of passwords.
2. Never trust a strange computer. Ever. If it's not your own computer, don't log into your account.
3. Never click on links in your emails, even if they are from someone you know. If you want to go to that site, type it in manually.
4. Get yourself a good anti-virus program (like AVG), a good firewall (like Kerio or ZoneAlarm), and a good anti-spyware program (I use several - Spybot: search & destroy, AdAware, and AVG anti-spyware) and USE them regularly. All these listed here are free, so they're frugal, too! :-D

I'm sure my dad (whose job is internet security) will have more things to say, but those are some pretty good starting points.