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I Will Teach You To Be Rich: Beat the Banks

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Oh yeah…time to play smarter.  Time to get a leg up on the banks if we can.  We tend to send most of our money through checking and savings accounts at our standard brick and mortar banks.  This way we don’t have to stuff our money under our mattresses and physically take our money to the electric company or phone company to pay our bills.  Seems like a good deal and very convenient, so how can we beat the banks?  Ramit Sethi and his book, I Will Teach You To Be Rich, has some recommendations.  But before we go there, let’s start with understanding our checking and savings accounts.

Checking Accounts

Ah, the good ole checking accounts.  I suspect originally named after the ability to write checks from it.  We deposit money into them manually, or we have our paychecks directly deposited to them.  Though I am sure plenty of people still write checks, most of us use our debit cards for most transactions.  I suspects checks are mostly used for places where you can’t pay online, or used by people who have to pay a bill, but don’t have the money in their account.  They are hoping the money will be there by the time the check clears.  We all know that game.  This is typically the account that most people pay for everyday expenses from, using that trusty ole debit card.  It’s so easy to swipe and get what we want.

Savings Accounts

This is where most people put their money when they want to have a little in reserve or if they are saving up for something big.  Or perhaps they are just saving for a rainy day.  Typically, money saved here is either short term (one month) to mid-term (five years).  We tend to have our savings account at the same place we have our checking account.  I believe most banks will give you a savings with a checking account.  You can use most savings accounts as an overdraft account.  Yes, banks have automated the ability for you to spend more than you have in your checking account by pulling it from your savings.  It is great that they protect you from overdraft fees, but they want all your money for other reasons.  They want as much money as you will give them.  “Put your money here, we will protect it.”  I am picturing an evil genius twiddling his fingers.  So, what’s the big deal?

The Big Deal

The problem here is that banks want you to save your money with them, where they will typically pay you a really crappy interest rate, but then turn around and loan your money out to other people at much higher interest rates.  If you have great credit, I believe you can get a loan, as of this writing,  from a bank for 3.5 – 4% interest.  The crappier your credit, the higher the rate.  While even the people with the best credit are getting a 3.5% rate, your bank is probably paying you interest on your money of about .001%.  No, that’s not a typo.  So, yes, they want your money.  Needless to say, this does not even keep up with inflation.  So, what can we do?

How To Beat The Banks With Your Checking Account

For your checking account, treat it like an email inbox.  You can use it for depositing money, but filter it out to other places as quickly as you can.  Only keep enough money in their to pay your bills.  Sure you can leave a little in there for debit card use, but you don’t want to use your debit card all the time either.  Make sure you find a checking account that has no fees and no minimums.  You don’t want to be charged $20.00 because you are below the minimum required amount for the account.  Your local bank or credit union is a good place to look for these accounts.  Regardless of where you have it, make sure you are quickly filtering money out of it into other places.

How To Beat The Banks With Your Savings Account

I believe you should have at least two savings accounts.  Have one account at the same bank as your checking account.  No, they won’t pay you a good interest rate, but you can use it in case of an accidental overdraft of your checking account.   No one intends to overdraft on their checking account, but I have experienced times where I failed to leave enough in my account to cover a bill I thought was coming on one date, but came on another.  I would recommend leaving about $500 in this account just to protect yourself from overdraft fees and bounced checks.

You should have a second savings account at some online bank.  These banks don’t have the overhead of a physical location and can offer you a much better interest rate.  No, it won’t be huge, but it will be close to keeping up with inflation.  For example, I use Marcus: By Goldman Sachs for my online savings account.  They pay 2.25% interest on your savings and will automatically adjust it for you.  For example, when I opened the account about a year ago, my interest rate was around 1.15%.  Over the year, they have consistently raised the interest rate up to 2.25% today.  Thank you very much!!!  There are plenty other online savings accounts that are out there, so just do a quick Google search and find one that meets your needs and has a good interest rate.

Automate Everything

Figure out how much money you need in your checking account to cover your bills each month.  Put a minimum of $500 in your savings account with your local bank.  Now automate everything.  For any money above what you need to pay your bills and a little extra for your debit card, automate it to be moved from your checking to your online savings account.  You may be wondering what you will use for every day purchases.  You remember our post last week about Credit Card Do’s & Don’ts?  The ole cash card I referred to?  Make all your everyday purchases on your credit card and then pay the credit card off every month with automatic bill pay.  Sure you have to stay on a budget to make sure you have enough money to cover your expenses, but this is the way to go.

Final Thoughts

This may seem like a no brainer, but many people don’t do this.  They are content with leaving their money in their standard brick and mortar local banks with no thoughts on how they can earn money on their money.  Put your money in an online savings account earning at least 2% interest.  Move money out of your checking account and feed that online savings account.  Use your credit card and earn rewards, preferably cash rewards, on your every day expenses.  You can easily pick up some extra money, that over time can really make a big difference.  Be smart, make this simple change, and reap all the rewards!!!

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