How to Stop Losing Money in Your Traditional Savings Account

Are you still keeping your emergency savings in a big traditional bank? If you are, you are losing money every single day. Most people think a bank is the safest place for their cash. While your money is physically safe there, its buying power is shrinking due to inflation.

The interest rate on a standard savings account is usually around 0.01 percent. That is almost nothing. If you want to grow your money, you need to understand how interest works. You can find great personal finance and money management tips on our main site. Today, we will look at how to get a better return on your cash without taking big risks.

The Math Behind Your Traditional Savings Account

Let us look at some simple numbers to see the real damage. Imagine you have ten thousand dollars saved for a rainy day. You keep this money in a traditional savings account at a major bank. At an interest rate of 0.01 percent, how much do you make in a year? You make exactly one dollar. That is not even enough to buy a cheap pack of gum.

One dollar does not buy anything of value. Meanwhile, the cost of food, gas, and rent keeps going up every year. Your ten thousand dollars buys less next year than it does today. This means your money is losing value. You are actually losing wealth by trying to be safe in a big bank.

Now, compare that to a high-yield savings account. These accounts often pay 4 percent interest or even more. Put that same ten thousand dollars into one of these accounts. You would earn four hundred dollars in a year. That is a huge difference for doing almost no extra work.

Why Online Banks Pay So Much More

You might wonder how these banks can afford to pay higher rates. Is it some kind of trick? The answer is very simple. Most high-yield accounts are offered by online banks.

These online banks do not have physical branches on every corner. They do not have to pay for expensive rent, utilities, or large branch staff. Because their costs are so low, they can pass those savings on to you. They do this by offering much higher interest rates on your deposits.

It is a win for the bank and a win for you. Read our guide on smart money habits to help you get started with saving. Making small changes in where you keep your cash can lead to big rewards over time.

Are Online Savings Accounts Actually Safe?

This is the most common question people ask when they hear about online banks. They worry that these banks are risky because they do not have physical buildings. They fear they might lose all their hard-earned money if the website crashes or the bank closes down. Fortunately, this is not something you need to worry about if you check one simple detail.

You must make sure the online bank is FDIC insured. The Federal Deposit Insurance Corporation is a government agency that protects depositors. It protects your deposits up to two hundred and fifty thousand dollars per bank. This is the exact same federal protection that big traditional banks have. Your money is just as safe here as it is at the biggest bank in the country.

If the online bank goes out of business, the government makes sure you get your money back. Just look for the FDIC logo on the bank's website before you sign up. If you see that logo, your cash is perfectly safe.

What to Look for in a High-Yield Savings Account

Not all high-yield savings accounts are created equal. You should look at a few key details before opening an account. First, check the fees. The best accounts have no monthly maintenance fees at all.

Second, look at the minimum balance requirements. Some banks require you to keep a large amount of money in the account to get the high rate. Avoid these banks. Look for ones that offer the high rate even if you only have one dollar in the account.

Finally, check how easy it is to move your money. You want to be able to transfer cash back to your checking account quickly if an emergency happens. Most online banks let you link your old account easily. Transfers usually take one to three business days.

How to Make the Switch in Ten Minutes

Moving your savings to a better account is very easy. You can do the whole process online from your couch. First, find a highly-rated online bank that offers a great interest rate. Fill out their online application, which only takes a few minutes.

Next, you will need to link your current checking account. You do this by entering your routing number and account number. Once the accounts are linked, you can transfer your emergency fund over to the new account. It is that simple.

Do not let your hard-earned savings sit in an account that pays you pennies. Take a few minutes today to open a better account. Your future self will thank you when you see your savings balance grow every month instead of staying flat.