Put that extra money to work!

Checking accounts are a great financial instrument to have. They allow you to store and access your money safely without worry. The only drawback to the checking account is the very low rate of interest. Traditionally, checking accounts offer a very poor annual interest rate--Often about 0.5%. For most folks this is not an issue, they spend their cash in their accounts paycheck to paycheck and do not have extra money at the end of the month. Of course, knowing my audience, that is not true (hopefully)!

If you find your checking account to have more money than you need for bills and expenses every month and growing, there is a simple solution you may have overlooked to put that money to better use. The first solution would be to increase the contributions to your 401(k), Roth, and/or other investments. If you need more liquidity-i.e. access, you can always dump that extra cash in a high-yield savings account.

Returns on high-yield savings account can be as high as 6%--12 times the average you are receiving in your checking account. A little quick math for you to drive home the point on the higher interest rate: With $10k sitting in your checking account vs. a saving account at the rates stated earlier, you are looking at an annual difference of $550. Hardly worth passing up on! Go to http://www.money-rates.com/savings.htm for a summary of current rates being offered with banks.

Keep an eye on the interest rate to guarantee you are making the most interest on your money. These rates can be introductory rates (~3-6 months) or adjustable rates at either internet banks or regional brick and mortar banks. Some even offer free on-line checking, ATM cards, and free bank to bank transfers. ING Direct will allow you to set up monthly contributions—key to running a tight budget and still being able to save money. I urge you to do your research on what is appropriate to your needs.

I use HSBC—not the tops on the interest rate currently (they had the best a year ago), but reliable and easily accessed through the internet. I have also worked with ING Direct and had a positive experience as well.

I use these high-interest savings accounts to store my emergency funds (that 3-6 months of savings needed in case I lose my job). I will also store money I may be saving for an upcoming expensive purchase. Not only do I receive the advantage of high interest, the transfer of the money can take up to three business days—a great barrier to impulse spending. By moving that money out of my checking account, I’m not tempted to break my budget as well.

One thing to note—always bank with a FDIC (Federal Deposit Insurance Corporation) Insured bank! Most banks will have the FDIC logo on their homepage .
You can always look up a banking institution on the FDIC web site as well to learn more about the bank in question (www.fdic.gov).

The FDIC is a Federal institution that guarantees balances up to $100,000. That’s right, if the bank folds, you get your money back. Needless to say, if you have over $100k in an account, you should probably diversify into other holding or at least open another account somewhere else. Rarely does a bank fold, but one did fold recently, http://www.netbank.com/ . Nothing to worry about if you are within the FDIC limits, but something to be aware of regardless.

High interest savings accounts are a valuable financial tool to increase interest on cash you cannot invest or need for short –term purchases or emergencies. As long as the bank is FDIC insured, and you are comfortable with the services provided, the high interest savings account is a useful tool to put your money to work for you.

-Rocketshoe