Make Your Money Work For You

What does that mean? 

It means your money should be making you money without your active involvement. In other words, you should be making money while you sleep. 

Yes, this is possible. 

There are numerous ways of doing this but let’s start with the basics. Where do you bank? Bank of America, Chase, Credit Union, online bank? 

What interest rate are you getting in your savings account? See the chart below for some common banks. 

Comparison of Interest Rates ($1,000 in savings account)

Bank Interest Rate Interest Earned

Wells Fargo 0.01% $0.10

Bank of America 0.03% $0.30

Citibank 0.04% $0.40

Chase 0.01% $0.10

Travis Credit Union 0.00 - 0.15% $0 - $1.50

Ally Bank (online bank) 1.6% $16

You might notice that your bank barely pays you interest, maybe a few pennies or a dollar a year. We have a fractional reserve banking system which means the banks use our checking and savings accounts to make loans to qualifying customers. They are only legally required to keep 10% of account values on hand and the rest they can send out in loans. If you have good credit, the interest banks are charging on a 30 year mortgage is 3.85%. 5 years ago, my husband and I got our mortgage for an interest rate of 4.00% and borrowed $330,000. If we make our payment every month for 30 years, we will pay back over $900,000 - almost three times what we borrowed!!! There are probably using some of your money to make these loans and how much of that interest are you receiving in your savings account???? If you belong to one of the big banks - almost zero! I don’t really have a problem with this but if you want to make your money work for you, a bank with a low interest rate is not the way to go. 

Make a change and get a new bank!!!! There are numerous banks that are now offering high interest savings accounts. They are mostly online banks which means there is no brick and mortar store to visit. My husband and I moved our bank to Ally Bank last May. I moved my checking and savings and he just moved his savings. When we opened our accounts, the savings interest rate was 2.3%. It has since dropped to 1.6% because the Federal Reserve lowered the interest rate 3 times last year. I am testing out an additional bank called Fitness Bank which ties your monthly interest rate to the number of steps you take per day! An average of 12,500 steps a day = 2.3% interest rate. It definitely motivates me and keeps me way more active. 

Things to consider with an online bank: 1) do your research, 2) make sure they are FDIC insured, 3) explore their customer service options so you know you can get help when you need it, 4) explore their fees and accessibility, and 5) explore the services provided. Some online banks are only savings and don’t offer checking. Fitness Bank is only for savings, Ally does it all. You may want to leave your checking account and just open a high interest savings account. Only you can make that decision. 

Another consideration: Inflation. On average inflation is 2% per year, meaning that if you are not making at least 2% on your savings account, your money is actually losing value every year. This means the amount of money you have in savings buys less and less each year. So at a minimum you should be aiming for an interest rate of 2% or more. This is a little hard at the moment with the Federal Reserve lowering interest rates but it is worth trying.   

Finally, the numbers & compound interest. If you have an emergency savings account of $1,000 for 20 years, the values are as follows. FYI, your emergency savings account should be way more than $1,000!

Bank Interest Rate Value after 20 years

Wells Fargo 0.01% $1,002.00

Ally Bank 1.6% $1,377.12

Fitness Bank 2.3% $1,584.05

No, you are not going to get rich on a 2% interest rate but remember if you are not making at least 2%, what would have cost you $1,000 today will cost you $1,250 in 10 years. If your bank is not paying you at least 2% then you are actually becoming poorer every year. So move banks and make your money work for you. 

Disclaimer: You need to do the research and pick the bank that is right for you. You may find that a big bank meets your needs. Just because my husband and I chose Ally Bank and are trying Fitness Bank, does not mean those banks are the best for you. Only you can decide what you need and do your research! Also, I am here if you need a sounding board.