As of today, the “Big Four” banks (Chase, Bank of America, Citibank, and Wells Fargo) all pay less than 0.1% interest on their savings accounts (source: Bankrate). That means millions of Americans receive less than $1/year for every $1,000 they have in their savings accounts!
If you have money in one of these accounts, you might say, so what? I wasn't expecting to make much from my savings account anyways.
Well, what if I told you you’re actually losing money from that savings account every month!
How could you possibly be losing money every month? Because of the Darth Vader of personal finance: inflation.
Is it just me, or is this starting to sound like a really bad deal?
You may also be thrilled to learn that the Big Four are taking the money you deposit and earning much higher returns to pad their massive profits. All while continuing to pay you a measly 0.1%.
So, is there a better way than letting your money lose value every month in exchange for practically nothing? The answer is absolutely! In fact, there are easy options that pay you over 20 times more than the big banks without any extra risk.
These options are known as “high interest savings accounts.” But I don’t think that name does them justice. Compared to big bank savings accounts, I would call them “mega money making machines!” Yep, that’s a lot catchier.
Great examples include Ally Bank, Barclays Online Savings, and Goldman Sachs Marcus. As of July 2019, all three pay over 2% interest. That means that even after inflation your savings still grow in value!
Imagine if you want to build up 6 months of spending as an emergency fund. Let’s say you spend $4,000/month. So you’ll eventually aim to save up $24,000 (6 * $4,000) in a savings account. In this scenario, you’ll earn $504/year with a Barclays account vs. less than $24/year with a Big Four bank!
That’s over $40/month, which, for reference, is more than a Netflix, Spotify, and Amazon subscription put together!
Finally, these high-interest savings accounts offer the same FDIC insurance as the big banks do! That means if they go out of business, which is unlikely, the government will refund you any savings you put in up to $250,000.
So, the way I see it, if you have over $1,000 in a savings account, there’s really no upside to keeping it at a "Big Four" bank.
Unless of course, you cherish the knowledge that your hard-earned savings will help poor old JPMorgan Chase hit their quarterly earnings figures. Yeah, I didn’t think so.
tl;dr: Put your cash savings in “high interest savings accounts” that earn more than inflation. Don’t use big bank savings accounts that pay you almost nothing and cause you to lose money to inflation every month!