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Thursday, February 22, 2007

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.

Related Posts:

6 have poured out their souls in electronic text:

  • devildogwife

    Great ideas! Thanks for sharing. I'll have to look into the savings account online...

  • Tammy L

    Thanks for the informative post! I have a question about clicking on links in emails... do you seriously mean NEVER, or just when it has to do with your banking? Does it matter what type of site you're clicking to? :) Thanks! :)

    P.S. We do the bible verse thingy with passwords, too! Only slightly differently. Same idea though. :)

  • Harmony

    Tammy:
    If you were really paranoid about internet security, then yes. You would never click on ANY links. I can't say that I follow that advice all the time... But the most important thing is to never click on any links from anyone you don't personally know. Especially don't click on any links that come from an automated email (from, for example, ebay, your bank, or walmart). I would personally never click on a link from someone I knew if the email was just a link, or if it didn't seem to be consistent with how their emails usually sound.

    Here's the reason why. Hackers have learned how to send emails disguised as people or companies you trust. They also have figured out how to make a link *look* like the real thing, when in fact it is actually taking you to a site where malware will automatically download to your computer without your knowledge. This is called "phishing" (when criminals pretend to be a person or business you trust in order to steal your identity, information, etc), and it is extremely dangerous. You think you're on the legitimate bank website or what have you, but really you're just giving all your personal information to someone who is going to use it against you.

    So... not to make anyone paranoid. :) I just don't want anyone's life savings stolen from them.

    For more information on phishing, see the wikipedia article: http://en.wikipedia.org/wiki/Phishing

    And also, the FDIC has a page on safe internet banking, which you can read here:
    http://www.fdic.gov/bank/individual/online/safe.html

  • KellyM

    We've been with Emigrant for two years now and they're great. They also don't charge you for transferring the money, which is more than I can say for my home bank's checking account. I've learned that if I initiate the transfer from Emigrant, I don't get charged the $3 "processing fee" that I'd get if I initiated the transfer with my checking account's bank.

    Another password tip from my husband (also in infotech) is to use different passwords, rather than the same one for everything. I'm guilty of this, but am working on implementing some mnemonic devices to help me remember my new passwords, like remembering that my bank password is a Bible verse about money, my email password is a verse about the words we speak, etc. It's tedious, but so much safer.

  • Anonymous

    You knew I would weigh in on this ;-)

    Personally I do not do any banking online. I'll use my credit card online if I trust the site, but that's where I draw the line. At least the credit card provides me with a certain amount of fraud protection.

    I know most people these days are not willing to be that cautious. For those folks, an alternative that provides some protection is to boot your computer with a linux live cd (for a good example see knoppix.com -- type it into your browser, don't click!). That avoids the risk of saving secret information on your hard drive, and minimizes the risk of malware hijacking your session. Of course all the strong password advice applies!

    And I would *never* click on links in emails from sites like paypal, ebay, banks, etc (not to mention emails from strangers!). In fact I don't even open those emails unless I am expecting that particular message. If I want to know if something is wrong with my paypal account, I log on to paypal (typing the address in to my browser) to see if they give me any messages about problems.

    The problem with clicking on links is that there are various ways to disguise them so that they appear to take you to the official site but actually take you to a hacker's site.

    I absolutely think it is insane to access a retirement account (401k, brokerage, etc) online. There are plenty of horror stories of people losing everything due to those accounts being hacked. I won't even set up an online account like that. The convenience is not worth the risk.

    Ok I'm off my soapbox now ;-)

    Harmony's Dad

  • Alan

    ok back on my soapbox for one more point.

    If you are going to do banking online, make sure you use a password that you do not use anywhere else. Hackers are stealing id/password combinations from less secure sites and using them on serious monetary targets like banks, brokerages, ebay, etc. And they are getting in. Don't use your banking password anywhere else Of course it needs to be a strong password...

    Soon I think banks will be offering a USB token to customers for online access. That is a great idea (paypal already offer this). But it only addresses one of many ways you can get burned. All the other advice here still applies even with the USB token.