BANKS, BANKS, BANKS. I used to hear my Grandpa always say “I don’t trust the banks with my money”. He always kept cash and I am sure he had some hidden in his trailer somewhere. I grew up thinking that if he does a thing a certain way, it’s probably the best way to do it. The reason why was because he was older, wiser, took care of his self and was well off between his other relatives. Well, that’s not necessarily true. People can be older, but not wise. That can go the other way around, people can be young and really wise. Depends on experience and knowledge.
Banks have always been around, BUT online banks started in the early 1980’s. They didn’t get popular until the mid-1990’s when the rise of the internet started. Most of the online banks have no physical branch. No physical branch means they do not have a actual place where you can physically show up to their bank. This is beneficial for online banks less expenses for buildings, employees, utility fees, taxes on property, etc.
Therefore, online banks can provided better interest rates to their customers. I have a few banks that I use and they’re Ally bank, USAA, Vio bank, Chase, and U.S. Bank. Yes, I know, its quite a few banks. The online banks that use is Ally Bank and Vio Bank. The reason why is because usually they have the highest interest in the market. Of course this does fluctuate over time and can go up to a high interest rate or a low interest rate.
INFLATION:
On average Inflation is 2% meaning every year your value of $1 will lose 2 cents making it a value of $0.98. This is due to increase on prices over a given period of time. Inflation is a silent killer and is not avoidable. The bright side is you can definitely reduce inflation by keeping your money in a high interest rate bank or Certificate of Deposit (CD). CD’s act like a saving account and holds a fixed amount of money for a fixed period of time. These time frames can be as little as 3 months or 6 months. There are also longer CD’s to put your money in such as 1, 2, 3, and 5 years CD’s. Usually the longer the life of the CD the higher the interest rate will be paid to you! Also be aware that if you take you money out before the mature date of the CD you will be penalized. You will have to pay a fee for withdrawing your funds before the mature date.
COMPOUND INTEREST:
Also you get to receive compound interest which usually happens monthly, sometimes even daily compound interest this all depends on the bank itself. Here’s an example. You have $50,000 in the bank and your interest rate is 0.50%. $50,000 x 0.50= $25,000.00 move the decimal to the left twice it will be $250 you earn per year.
$250 / 12(# of months in a year) = $20.83 per month.
JAN: Started at $50,000, at the end of the month $20.83(Interest earned)
FEB : Interest added: $50,020.83 + $20.84(Interest earned)
MAR: Interest added $50,041.67 + $20.85(Interest earned)
APR: Interest added $50,062.52 + $20.85(Interest earned)
MAY: Interest added $50,083.37 + $20.86(Interest earned)
JUN: Interest added $50,104.23 + $20.87(Interest earned)
JULY: Interest added $50,125.10 + $20.88(Interest earned
AUG: Interest added $50,145.98 + $20.89(Interest earned)
SEP: Interest added $50,166.87 + $20.90(Interest earned)
OCT: Interest added $50,187.77+ $20.91(interest earned)
NOV: Interest added $50,208.68+ $20.92(Interest earned)
DEC: Interest added $50,229.60 + $20.92 (Interest earned)
At the end of the year total amount in the account is $50,250.52
Simple Interest earned was $250 and the compound interest 0.52
Noticed in month Jan interest earned was $20.83, but in Feb it was $20.84, the compound interest earned was 0.01 eventually that number goes up every month and the more you save that’s compound interest!
It may not seem like a lot but it does add up over time. Especially if you have a large amount in a account.
Federal Deposit Insurance Corporation (FDIC):
Ohhh and the big fear of banks going out of business and you losing your money. Well, you are insured for that! Its called Federal Deposit Insurance Corporation (FDIC). The limit is up to 250k, anything above that amount will not be insured within that bank. The FDIC generally covers up to $250,000 per account holder per institution. However, depending on how your accounts are titled, it may be possible to have more than $250,000 in one institution. Also, if you have 4 different banks that have FDIC you will be covered for 1 million as long as all of there accounts have at least $250,000 per account.
MATH:
Soooooo, how do I get $60 a month for Free? The interest rate online banks give to their customers. As of right now 18JUNE2021 interest rates for ally bank is 0.50%. Lets do the math!
Bank account has $145,000 and the Annual Percent Yield (APY) interest rate is 0.50%. $145,000 x 0.50%=72500.00
You have to move the decimal two times to the left because it’s a percentage. To do so you will need to divide by 100.
(72500.00 / 100= $725.00yr You see, the decimal moved two spots to the left! Now that is the amount of money you will earn in 1 year for FREE if you had $145k and a interest rate of 0.50%.
$725 / 12 (# of months in a year)= $60.41 Per month.
You might be thinking that you will not have 145k in a bank account all at once. I understand that part. I at one point thought I would never save six figures. but we can start off small like…$5,000.
Depending on the markets and where you search you can find higher interest rates. When I first opened an account with Ally Bank the interest rate was 2.10% that was in year 2018. Going back to the $5,000 lets say the interest rate was 2.10% (APY). Lets do the math!
$5,000 x 2.10%= 10500.00 You have to move the decimal two times to the left because it’s a percentage. To do so you will need to divide by 100.
10500.00 / 100= $105.00yr
105 / 12(# of months in a year)= 8.75 = $ 8.75 Per month. Not too bad for just having extra money siting around!
Physical branch banks have really low interest rates like 0.01% or even sometimes 0.001 which is nothing! Please do your research before picking a bank to save money on the interest! My go to is Ally bank! No hidden fees and gives you your money monthly on time. You also can see how much you will be getting daily.
ALLY’S NO PENALTY CD:
My favorite is the 11 month no penalty CD and it’s FDIC Insured up to $250,000 and you can pull your money out of the CD penalty Free after 10 days with the interest earned. It’s “Locked” in but you can pull it out after 10 days. Its simple and it shows you daily interest earned. As of right now my interest rate is 0.55%. When I first opened the account I had a interest rate of 2.10% It depend on the market and how thing are going.
The Frugal Ferns 