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.
Alan Gornik says
Consider T Bills. 3 Month Treasury Bill Rate was 3.91% for Oct 19 2022. Easy in / easy out.
Lazy Man says
That’s pretty good. I could see doing a big chunk of money there. I haven’t looked into how T-Bills work in a long, long time.
Alan Gornik says
https://www.treasurydirect.gov/marketable-securities/treasury-bills/ All done electronically. Weekly auctions. You pay a discounted amount and get the full amount sent back to your bank acct at the end of the term.
That’s not bad at all. My bank pays a very low interest rate too.
But we don’t have a lot of liquidity at this time. I already put $30,000 into a real estate crowdfunding project. Property taxes and various other big bills are coming as well.
Lazy Man says
Yeah there are diminishing returns if you don’t have a significant amount to put in.
Thanks for the tip on Ally. I usually keep my cash in a Fidelity brokerage account where the default settlement fund is SPAXX and is currently earning 2.61%. The extra 1% at Ally makes it worth it to transfer, but I’ll be transferring it back once the offer concludes.
A few years ago when the interest rates went up a bit I moved around $50k to Discover bank, which was paying 2%, compared to my Chase bank of .01%. Discover came down over time, but always pay more than Chase, so I’ve recently moved more to Discover since they are over 2.25%. Chase charges 24% interest on credit cards (we don’t maintain a balance but know people who do), but pays .01% on savings? Seems kind of like a bad deal all around for the consumer.
Lazy Man says
That’s good to have gotten 2% a few years ago. As for Chase, someone has to pay all the salaries and overhead for all the buildings.