Don’t save what is left after spending; spend what is left after saving. – Warren Buffet
If you take a look at your bank accounts, you will notice that the rates on your savings accounts are minuscule.
On average, savings rates are a paltry 0.01% APY.
That means you are not even earning 1% on the money you have stashed away in most big banks.
This meager 0.01% APY is not doing anything for you.
If I put my hard earned money into a bank, I want something for it. These rates are almost no better than sticking your money under a mattress!
However, don’t do that. If the house ever catches fire, your money also goes up in smoke and is not FDIC insured.
I once heard a real estate mogul say that many years ago there was a time when interest rates were paying 10%. He was able to double his money every 7 years!
Now, that is fantastic.
However, this is not the case anymore.
Although, there are some banks that are willing to pay a fairly decent rate for the opportunity to house your money.
I found a few from doing an online search.
So, here is how you can earn money from placing your money in a high yield savings account.
WHAT IS A HIGH YIELD SAVINGS ACCOUNT
A High Yield Savings Account is a savings account with a variable rate typically higher than retail brick-and-mortar banks.
These banks are usually online and offer no physical bank that you can visit.
However, you can deposit your money online via electronic funds transfer.
Access to you funds may include a combination of wire transfers, checks, or ATM withdrawals. But this is not always the case.
For example, American Express® Personal Savings accounts are not meant for everyday spending. Therefore, debit cards, ATM cards, or checks are not provided. Transfers have to be done online. And transferring funds online can take anywhere from 1 to 3 days to complete.
Therefore, you should only deposit money in these types of accounts that do not require you to need access to these funds immediately or for daily spending purposes.
THE RULE OF 72
This rule allows you to estimate how long it will take for an investment to double at any given interest rate with the “Rule of 72”.
Knowing this will allow you to make a more informed decision before placing your money in any investment or savings vehicle.
You must also pay attention to the type of account you put your money into. For instance, a money market account or Certificate of Deposit (CD) will pay you more than a savings account.
Stocks pay you he highest rates of returns and give you the biggest bang for your buck!
The average annualized total return for the S&P 500 index over the past 90 years is 9.8 percent.
With the Rule of 72, If you use the formula, that equates to 72/9.8 = 7.34 years to double your money.
However, many banks are paying 1% or less!
Therefore, if your savings are earning only 1%, this means you money will double in value in 72 years.
That is 10x longer than if you had invested your money in stocks.
BANKS WITH HIGH YIELD SAVINGS
After doing a short search online, I found the following banks with high yield savings:
- American Express National Bank – 1.90% APY
- Ally Bank – 1.90% APY
- Barclays Bank – 1.90% APY
- HSBC Direct – 2.01% APY
- Synchrony Bank – 1.90% APY
HOW MUCH YOU CAN EARN
This amount can vary based on how much is deposited.
Of course, the higher the deposit amount the higher earned in interest.
You can use this money for anything you want or simply keep it invested and let the interest keep compounding on the amount you earn.
Please be advised that you still have to report this as income on your taxes. The bank will supply you with a form for tax purposes.
Now let’s show you the money.
We will use the 2.01% APY as our rate.
If you deposit $15,000, into an accounting paying 2.01% APY, you will get the following:
If you deposit $25,000, into an accounting paying 2.01% APY, you will get the following:
If you deposit $50,000, into an accounting paying 2.01% APY, you will get the following:
SKY’S THE LIMIT
All yeah! Let’s stack that paper!
Unless banks start putting a cap on the amount you can deposit, you can pretty much do this until you feel you have deposited enough in savings.
The point of using a High Yield Savings is to grow your money while you sleep.
That’s right. You can earn money just for breathing.
Merely allowing it to sit in an account paying less than 1% will not beat inflation; being its customary 2-3% rate per year.
At the very least, your money can keep up with inflation and not fall so far behind.
The goal is to always beat inflation.
Your money will have less purchasing power as inflation does its thing.
Therefore, it is your job to finds ways to keep the money train going by figuring out how to earn more, invest more, save more, and ultimately beat the inflation monster that is coming out every year to a theater near your wallet.