All of us should be checking the interest rate we get on our savings accounts every year to make sure we get the best one! It doesn’t matter how much or how little one has, it’s about creating that habit of making sure your money is working for you (generating income).
Remember that the compounding effect is the 8th wonder of the world according to Albert Einstein.
Interest rates are currently very low on savings accounts
The low interest we are currently getting on our accounts is mainly due to the central banks (like the FED or the ECB) keeping their rates extremely low in an attempt to make the economy more robust. I have described in more detail how it all works in this post: Why interest rates on Savings Accounts are close to zero. I don’t want you to pay too much attention to it though at this point, what’s important is that you get into the habit of being on top of your money so that they always work for you. If you choose not to pay attention, you might have money for years in a savings account paying zero interest. Yes, there are accounts like that which people have had their money in for almost a decade…
How to find the best account
To make sure you are on top of this, I suggest you check the interest you are getting on a continuous basis. There is always competition going on amongst banks and other financial institutions and usually there is a better rate to be found. One of the great things about the internet is the availability of information and in this case, the comparison sites like: www.bankrate.com or www.nerdwallet.com are very useful.
What to look for
You have to find an account (or accounts) that matches your needs and requirements. If you know you will need instant access to your money, don’t deposit them in a long term Certificate of Deposit (CD). If you do, you will most likely lose the interest rate you thought you would get. I would recommend you have different accounts for different purposes, just like we went through in: The Bucket System – Automating your Finances.
The key thing is of course to find an account which pays you the highest interest with the most flexibility (if that’s what you need). If you don’t need the money for a couple of years, maybe a deposit is more interesting as it should be paying you a higher interest. The key thing is to understand the terms so that you know you will actually get the stated interest! These can sometimes be tricky to read and understand so if you are unsure, ask a friend (or me) who has an interest in personal finance.
How often you should do it and why
Because of the competitive market amongst banks, there is always a better deal to be had. Most of them offer something attractive for the first year or so. This means an easy way to handle your accounts is to go through them once per year and try to find the best interest rate given your circumstances. Everything can be done online these days so it’s very easy to set up an account and transfer the funds to a different provider. Of course this makes more sense the more money you have but every little counts and you are working on creating a new great habit!
The same things goes for you credit cards as we talked about in this post: Credit Card, Crazy Card or Creative Card?? If you haven’t read it yet, make sure you do as it can save or even make you +1000 USD in one year!
I want you to get into the habit of making sure your money is working for you 24/7. We can only start with what we have and it doesn’t matter how much or little as long as we do get started! The sooner we start the better as time will be on our side and while our money is growing, so will our interest too!
Actions to take:
- The Language of Money – a language for life
- How to change your money mindset!
- The Wealth Pyramid
- How to save +1000 USD in a few hours!
- How to break a bad habit and create an amazing one!
- Buying a new car – Wake the fck up!