Lazy Man and Money

Get Those Bank Interest Rates and Bonuses!

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Bank

I was recently writing on my other site that when I was a kid interest rates were great. When I was eight, a 1-year CD paid around 9-10%. Savings accounts and credit unions were also paying great interest rates. It was easy for me to get excited about compound interest.

Except for The Great Recession, the same CDs have paid less than 2% for the last 20 years. For the last 10-12 years, they’ve been paying around 0.25%. And these are CDs, not savings accounts, that you can access easier. Saving accounts earn less. My local bank, BankNewport, pays 0.05% even after the Fed has raised interest rates a lot this year. At that point, it might as well not pay interest at all. A whole generation hasn’t ever gotten much interest from savings accounts.

I hated it so much that I once wrote Why I Don’t Have an Emergency Fund. I did have an emergency fund, but I used my HELOC at an 8% interest when needed. It wasn’t one of my smartest ideas, but it worked for me. I didn’t need it very often, and when I did, I always cut spending to the bone to get that 8% paid off. I justified it by telling myself that the money I was investing was earning 10%. For the most part, it has done exactly that since 2007.

I continued this for several years. Even in the last several years, I used a HELOC. Rates we low, and I had a locked-in lower rate than usual.

Our lives are changing. My wife is thinking more and more about retirement and activating her military pension. At 46 years old, we’ve had a couple of decades of excellent compound interest. (We hope to have several more left.) We’ve got some income streams, but it’s time to be more conservative. It’s time to value liquidity. It can be cash, I-Bonds, CDs, or T-bills. Anything we can get to relatively quickly and won’t drop is on the table. As a backup, we still have the HELOC and credit cards, so we can float some expenses while cashing out these safe investments if necessary.

With the Federal Reserve Bank raising interest rates, there’s an opportunity to earn interest in savings accounts. It’s not going to be 7-8% like when I was a kid, but it’s more than we’ve seen in twenty years.

This gave me the idea to look and see if our cash savings could be doing more for us. The good news is that cash can finally work for us – and it can work for you too. We’re moving 90% of cash away from BankNewport’s 0.05% interest to Ally Bank. Ally Bank, right now, is offering 2.25% interest. A $50,000 emergency fund can earn $1125 in interest. That’s much better than the $25 we’d earn locally. They are giving us a free $1100. It’s FDIC insured and just as safe.

But wait, it gets better. If you sign up and transfer the money before the end of October, they’ll give you a 1% bonus. Our $50,000 can earn another $500 for a total of $1600. You can use this promo.

This is the part of the article where I mention that I’ll make ZERO money if you do this. Ally Bank doesn’t know that I’m writing this article. They aren’t paying me anything, to mention it. I don’t make money by referring you. I only make money from whatever ads you see on the page. Other banks may pay you more than Ally Bank, but I recognized the brand and saw a deal, so I just jumped in. There’s no need to delay because perfect is the enemy of good.

More Fees, More Fees, and… No Fees?

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Over the past week or so, I couldn’t help but notice that there’s been a cluster of news reporting around fees. What I found interesting is that two industries’ fees keep going up and up… and the third industries’ fees have gone to zero. Specifically, ATM and cable company fees continue to rise, while brokerage trading fees are disappearing.

As consumers of these services, being aware of these trends can help us make wiser financial decisions. Of course, it’s not always clear what’s going on behind the scenes, so let’s take a look at each in more detail.

ATM Fees Keep Rising

ATM fees have reached a new all-time high. According to this this USA Today article, the average cost of an ATM withdrawal is $4.72. That’s crazy.

I haven’t been following ATM fees too much because, as the article notes, fewer people are using cash nowadays. My bank, USAA, reimburses us for ATM fees since they don’t have a network of their own. However, for a significant percentage of people, this can be a pretty big hit. That’s why I recommend having a bank that reimburses some or all of the ATM fees if at all possible.

Cable Companies Hide Increasing Fees from Consumers

The headline from Ars Technica was shocking, Cable companies use hidden fees to raise prices 24% a month. Or maybe it’s not shocking since we are talking about the cable industry here. I’ve written about Cox’s banana pants pricing, anti-competitive behavior, and shady pricing tricks.

I don’t mean to single out Cox, Comcast wasn’t any better when I had them as a cable service. Consumer satisfaction surveys repeated show that people hate their cable provider. The system was designed to eliminate competition, so most consumers must accept whatever pricing and terms they can get if they want high-speed internet.

I’ll now step off that soapbox and get back to the news of the 24% increase a month. The news mostly comes down to disclosure, but there’s some interesting fees in there too. For the disclosure part, if a company sells you on a service for $99 it should be $99. If there are government taxes involved, they could clearly state exactly what those are up-front in the advertisement. It shouldn’t be, “$99, plus fees that happen to be ~25% more.”

The interesting fees that I mentioned above are not necessarily government fees. For example there’s broadcast TV fees, which is what you pay to watch NBC, ABC, CBS, etc. that you could get for free with antennas. This is a touchy subject for me. I don’t think I should have to pay for something free just because of a technology hack.

Another fee mentioned is the regional sports fees. I watch a lot of regional sports, so I don’t mind paying for it, but they used to be part of the cable package. For people who don’t watch regional sports this is just wasted money. An easy solution would be to make it a package you can optionally buy. However, why give people the choice when you can just charge them all?

It’s worth reading the full Consumer Reports PDF here.

Brokerage Fees Go Zero

In the last couple of weeks, a group of brokerages have eliminated fees for trading stocks completely. It seems like it started with Interactive Brokers Group, but I’m not familiar with them. The big news was Schwab going commission free. TD Ameritrade and E*Trade followed suit. Then Ally Invest joined the party. Literally hours ago (as I write this) Fidelity decided they’d go commission free too.

I’m old enough to remember when a stock trade could cost hundreds of dollars. Typically it was done over a phone call (gasp!) with a stock broker. You had to deal with messy fractions. With the expansion of the internet in the mid-late 1990s, E*Trade and other brokerages brought stock trading to the masses with commissions that ranged from around $10-15 a trade.

I feel this movement to commission-free trades is another revolution. I hope that it encourages more people to invest. Some people are very fee adverse (*raises hand*) and this removes that. It’s also one less thing to explain to someone new to investing.

Part of the reason of the drop to zero commission fees is the success that Robinhood has had. It’s hard to get someone to pay for something when someone else is giving it away free. That’s specifically why I opened a Robinhood account for my kids years ago. As we’ve learned in other areas of technology, something free sometimes costs you in other ways.

Consumer Reports highlights a couple of the catches:

  1. They are trying to get new customers to sell them products with higher fees. That’s something to be aware of.
  2. You may not earn a good interest rate on the spare cash in your account. The brokerages can use all that money and earn more interest. The good news is that with zero commissions, you could invest almost all the extra cash into a very conservative investment like Vanguard Total Bond Market ETF (NASDAQ: BND) paying a 2.5% yield (or interest rate for practical purposes). That’s what I’ll be doing.

I don’t mind these catches at all since I can control both cases well.

Final Thoughts

I find it interesting how all these fees are trending. The cable company fees are going up because of a lack of competition (among other things). The brokerage fees are going down because of fierce competition. This isn’t a surprise, but the contrast of the two industries makes it clear that regulation matters greatly.

The outlier is the ATM fees. They are going up because fewer people are using cash. It seems like that would mean that they have to physically fill the machine with cash less often. That’s logically what the fees should go towards. If that’s the case, the fees shouldn’t have to increase. I suppose the fees should also cover the rent for the physical space they take up which is a fixed cost.

The movement of these fees have been gradual over time. If not for all the news coming out at the same time, I wonder if I wouldn’t have even noticed it? Sometimes, it’s helpful to step back and look at something fresh and think about how we got to where we are.

Are Banks and Brokerages Winning Your Business for Pennies?

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Yesterday a friend of mine sent me a message about something that I’ve been meaning to write about for some time. The gist of the message was that there are minimal differences in expense ratios when they move a hundredth of a percentage. He’s right.

There are a few brokerages that seem to be in an “expense ratio war” for many popular ETFs (exchange traded funds). Vanguard had the lowest fees for many years. However, Schwab and Fidelity have lowered their fees a lot and can be just as competitive as Vanguard.

The average investor shouldn’t care if their expense ratio is 0.04% or 0.06%. If you do the math, on a million dollar portfolio in the future, the difference is likely to be under a thousand dollars. While that may sound like a lot, but by then that likely won’t even pay your cable bill. (I joke… kind of.)

Even if you go from 0.06% to 0.15% it isn’t a huge difference.

So why care about expense ratios at all? It really starts to matter when you give up 1% of compounding interest year after year. Even a half percent can be a big deal. When you stop and think about it, it makes sense right? Paying 1% of a $200,000 house is $2000. Paying 0.04% is paying $80. Paying 0.06% is paying $120. So going from $80 to $120 is costing you $40, not a big deal. You want to avoid going to $2000 though. That’s a big expense to pay every year.

I love low fees as much as the next guy, but there is the law of diminishing returns. It’s like trying to squeeze water from a stone.

Banks and Interest Rates

For years, I’ve seen a bank advertise that they were paying as much as 10x as much interest than the national average. (I can’t remember which bank it was, which tells you how effective this kind of advertising is on me.) The bank had a small graph that showed the national average bank paid 0.05% in interest. Then they showed they were paying 0.5% interest on their high-yield account.

Those might not have been the exact numbers, but it was close. Essentially if you had $10,000 in the bank account, you’d earn $50 of interest a year instead of $5. Don’t get me wrong, I’ll take $45 for free. However, I won’t spend my time switching banks. I typically keep around $5000 in a bank anyway, so the interest difference is closer to $25 a year.

You have to give the bank a lot of money before the “10x” more interest amounts to much more than one free dinner out each year.

The other detail that isn’t mentioned in the ad is that many banks have similar high-yield interest accounts. There might not even be the need to switch banks at all.

Bottom Line

It’s great to be able to shop around for the best rates and lowest investment expenses. However, I don’t think people should waste their time trying to chase zero expenses or an interest rate that isn’t going to generate great returns.

P.S. I tried to do something a little different with this than usual with this article today. I started with free-form typing as fast as I could think and then cleaned it up a bit at the end. Ideally, I’d have polished this article for a few days with charts and links to real data. However, one thing that I’ve really liked about blogging is that it is more informal. I try to get 90% of the idea out there in 10% of the time.

Savings and Checking Made Easy with Radius Bank’s Hybrid Account

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Years ago, I created this website with the tagline, “Making my money work, so I don’t have to.” I noticed that due to compound interest and living below my means, the choices I made in my early 20s had paid off handsomely by the time I turned 30. Those choices weren’t anything special, just basic ones such as maxing out my Roth IRA and 401k.

This idea of working smarter instead of working harder that lead me to create the “Lazy Man and Money” website. I wanted to show people that you don’t have to work hard to manage your money. If you do it right you can even retire early. What’s so hard about writing those annual Roth IRA checks? It took me all of a few minutes. Setting up the 401k was even faster than that.

Nearly ten years of blogging later, I’ve come to realize that there is a finite number of items that fit this criteria. Nowadays I assume most readers have this basic information and are looking to dig deeper. Today, I’ve got something new that should change how people manage their money.

Before I get to that though, let me talk about one of the biggest problems of managing money the “Lazy” way. It’s the old checking account/saving account conundrum. I need to write checks (even if they are automatic bill pay) via my bank account. The money in that account earns no interest. Alternatively, I can earn interest in my savings account, but I can’t easily pay people from it.

Thus, I’m left doing a money shuffle. The idea is to keep as much money in the savings as possible to maximize interest, while keeping just enough money in the checking so that I don’t bounce any checks.

Today, I learned that I don’t have to do the money dance. I found out that Radius Bank’s Hybrid Account acts as both a savings and checking account. It’s one banking account to rule them all.

Here’s how it works… You can use Radius Bank’s Hybrid Account just like any checking account. You can pay people from it just as you’d expect. The big difference is that account balances over $2500 earn an interest rate that is extremely competitive with the top high-interest savings accounts. How competitive? Radius Bank’s current 1% interest rate is actually better than Capitial One 360, Ally Bank, Everbank, and Bank of Internet.

So you get the best of both worlds… convenience of writing checks with an impressive interest rate.

If you are looking for gotchas, you are a smart consumer. I wish you luck, because I couldn’t find any. There are no monthly fees or minimum balance (other than the initial $10 to open to open the account). In addition, ATM fees are rebated back to your account. (That is one of my favorite features of any bank.) And of course you get typical FDIC insurance.

I think this is a game changer. Once people get a taste of this, why would anyone go back? Who wants to shift money in separate savings and checking accounts?

What do you think? Would you going to sign up for the Radius Bank’s Hybrid Account? Let me know in the comments below.

Three Suggestions for Growing Your Savings Account

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[Editor’s Note: The following is an article from my friend Julie. Many tried and true personal finance tips are summed up here… a good way to kick-start your savings goals for the new year.]

You know the funny thing about savings accounts? If you don’t have the available funds to deposit, essentially there’s nothing to save. As many of us struggle to make ends meet, the need to save often falls to the bottom of the list of priorities. Be that as it may, having a savings account is beneficial for various reasons. It provides a nest egg for personal emergencies or for larger priced purchases. The only trouble is finding the money to put in the savings. It seems like there’s never enough to go around.

So what does one do when they want to save, but can’t find the spare change to put in an account? Get creative… and disciplined. I know, I know, more discipline!? But it’s the most effective way to build your savings and for becoming financially stable. Below are a few methods for adding to your savings account each month:

1. Cut Back on Certain Expenses

Often the easiest way to find money to invest in your savings account is to evaluate your spending habits and find efficient ways to cut back. We often spend way beyond our means and in most cases it’s on things we want, but don’t necessarily need. Below are a few ways I chose to cut back:

· Bring Your Own Lunch – I love takeout just like the next person but when I checked my bank statements, I realized that eating out at even $5 per day was costing me a total of about $100 per month. So I decided to cut back on the eating out and now only treat myself to lunch on Fridays. This meant I was spending about $25-30 per month and could put the remaining money in savings.

· Downgrade Subscription Services – Do you have cable, data plans, or other accounts that require a monthly subscription or service fee? You’ll be surprised to see how they add up over the course of 30 days. I decided to remove all premium channels from my cable, downgrade my data plan, and even switch my Netflix services from streaming and DVDs to just streaming.

· Price Comparison Shopping – Lastly, I decided that for every purchase I made (whether its car insurance, hiring a contractor, or purchasing furniture) that I would compare prices. When I was able to find savings, I would put the difference in my account.

2. Start Small

Another way to grow your savings account is to start small. We often assume that if we don’t have hundreds of dollars to put away, it’s not worth saving. However, you’d be surprised to find out how far a few dollars (or pennies) can go over time – especially if your savings account has good interest rates. Start off with even a dollar per day $30 per month. In the course of a 12 month period, you’re looking at a savings totaling $360. The following year you can up it to two dollars per day and double your savings. As you free up more money in your budget, add it to your savings account.

3. Earn Extra Income

I know you’re thinking, “Not another job!” however, there are plenty of ways that you can earn money without ever leaving the house. In fact, according to Natalie Cooper of BankingSense.com , there are a lot of different ways you can earn money during your spare time. She included:

-Become a freelance writer -Sell crafts online

-Sell unwanted items

-Offer your services on the weekend (i.e. babysitting, lawn maintenance, etc.)

Cooper also added, “As you start earning money, be sure to put it all in the savings account. It can get quite tempting to begin dipping into the new earnings, but if you’ve lived this long without that extra money, you won’t miss it in an account.”

As you start earning money, be sure to put it all in the savings account. It can get quite tempting to begin dipping into the new earnings, but if you’ve lived this long without that extra money, you won’t miss it in an account.

You hear experts discussing how much money you should be saving, and it can become very intimidating. However, if you break the bigger picture down into concepts that you can easily follow it makes saving a lot easier to do. Some of the ideas above might require a bit of practice while others will come naturally. As long as you’re saving something, you’re doing a whole lot better than you were in previous months.