Why You Have A Savings Account
It’s always important for anyone and everyone to make the most of their money. Have it go further, spend it better, save it, and ultimately just have more of it. When most people think of their money they probably think how they can save better and how they can make more. Sure, there’s ton of online advice that shows the things you can do every month: create a side hustle, take some surveys, or get cash back on the things you were going to buy anyway. Yes, we admit these are all great things and would never discourage someone from working to make an extra dollar but like Warren Buffet said “If you don’t find a way to make money while you sleep, you will work until you die.”
“If you don’t find a way to make money while you sleep, you will work until you die.”
For most people they only make money while they are awake and at their jobs. So lets start talking about simple ways to make money while asleep. Because if you have to put in extra hours to make more money you’re just trading your time for that money. Enter savings accounts and compounding interest. Defined by Buffet as the “8th wonder of the world” (We’re gonna reference Buffet a lot through our articles, he is one of our main role models), compounding interest is the vehicle that lets your money make money and that money make even more money, all from the safety and security of your FDIC insured bank account.
You Already Have A Savings Account, So Who Cares?
All savings account aren’t made equal though and in the current environment of rising interest rates it’s good to look around and really understand how much your money is growing without effort or risk.
Chances are you probably have the same bank your parents set up an account for you at sometime early in your life, or you went to a college town where the options were few and had to open an account at the popular bank there. Our school gave the option of opening a college account right from orientation that would like up with our student ID’s. Nothing says starting College off right than a new bank account and maybe even a new credit card for all that responsible drinking you’re going to be doing.
There’s plenty to say good about the big national banks but when you look at the rate of interest they return on your savings, they are anything but at the top of the pack. I recently moved to a new city and neither bank I had accounts in in the North East existed down south so I took a dive through online articles comparing bank accounts and savings accounts while also hitting the pavement and going to local credit unions to try and decide what’s right for me. And that’s a tough question to answer and we advise you to think long and hard about what you need from a bank or credit union before you switch. This part takes a little more thought and we caution that you should not just jump in to a new account.
Now, I know it seems a little daunting but you can have your savings in one place and your checking in another. Personally, I use Marcus by Goldman Sachs. They offer approximately 16x the national average for interest on savings accounts and have incredible ease of access that everyone will love. There are no fees attached and your money starts compounding daily, starting the very first day your deposit hits their accounts. But there is a slight catch. Marcus only offers savings accounts and personal loans so you will have to keep your checking elsewhere. For me, dit was easiest to choose the local credit union that has an unbelievable ease of access in my city and also lets me tap into the Credit Union Network of ATM’s anywhere in the world, giving me quick and easy access to cash, at no fee whatsoever. There’s also the added benefit of credit unions that they usually offer lower rates on their big purchase loans such as home and auto and as someone looking at getting into real estate investing, this was extremely important to me.
Getting back to interest however, it’s what allows your money to grow from $100 to $101.85 in a year (if you use the current rate offered by Marcus) without even thinking about it. Yes’m, I realize that’s not a lot but let’s say you start with $1,000 in savings. You have a compounding interest rate of 1.85% and you don’t plan on touching your savings for at least 3 years. Without making any more deposits you will make an additional $57. I know, I know, this doesn’t seem like a lot but expand
this formula out and you’ll really see the benefit and magic of compounding interest and shopping around for the best rate.
Bringing It All Home
Let’s say you just graduated college, and for us, we just did. We’ve got $4,000 that I didn’t blow in college that I saved up from my internship. I’ve got my first job and I’m making enough to pay the bills and have some left over. In a conservative scenario, after accounting for my expenses like my social life and a dog, let’s say I can contribute $300 a month to that already $4,000 in savings. At the end of 3 years, if no withdrawals are made, I’ll have made an extra $521 dollars. Way outpacing the current rate of inflation. Going even beyond those three years and you;’re compounding on all of that as well. And that’s the magic of compounding interest.
It won’t get you rich quick but it will help you grow over the long term and that’s what the Modern Piggy Bank is all about.