This often hidden fact can be a surprise to some when they reach their 7th withdrawal in a month and get dinged with a $10 fee and a tisk-tisk e-mail from their bank.

So what’s the deal with this restriction? What do banks gain and what exactly is considered a withdrawal?

The good news is that deposits to a savings account are unlimited, but any withdrawal from the account is considered a transaction. This includes transferring within different savings accounts or transferring to a linked account.

Each savings account receives 6 transaction per billing cycle and the 7th transaction results in a fee. If the transactions keep occurring, the bank may even shut down your account.

The Actual Rule

According to Ally’s site: “The limit is actually set by federal law for electronic and telephone transactions from all U.S. savings and money market accounts.”

The legislation for the 6 transaction limit rule is referred to as Federal Reserve board Regulation D.

In layman’s terms: your bank doesn’t need to legally keep any of your savings account money in reserve. They can loan it out and because you can only make 6 transactions per statement cycle, they can be pretty sure that at least some of your money will remain in the account in case they need to tap your funds. The rule is a little confusing, but it makes sense from a business standpoint.

If you’ve read FF you know why I’m pro-online savings account so here’s the fees for online banks if you break this rule:

Online bank’s fee for each transaction after 6 in a billing cycle:

Ally: $10

ING: No fee, but may close account if withdrawals continue

Everbank: $10

FNBO Direct: No fee, but may close account if withdrawals continue

WT Direct: $10

HSBC: No fee, but if the transaction limits are exceeded for any 3 months during any twelve 12 month period, the Bank may be required to close the account or the account type be changed.

Emigrant Direct:No fee, but if you exceed the limit of six withdrawals for several months, your account will be closed.

Has any one ever had a problem with this rule with their bank?

Photo: CarbonNYC

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There is no fee for a majority of the checking and savings accounts out there. These banks host our money, insure it up to $250,000, and provide their employees and services with no charge.

So how do big banks make money?

Well, they offer other money-making services like auto loans and mortgages. They also take your savings and invest it elsewhere (more on this later). And credit cards are also a way for banks to make money off you – when you don’t pay off your balance on your bank’s credit card, the extra interest you pay goes in to the banks pocket.

The big banks have a lot of different income streams and although some recent government legislation is threatening some of the less moral money-making practices, big banks are doing all right.

But what about the smaller online banks that don’t have 49 different income streams? How do they make money?

I started thinking about this when an FF reader asked last week on the Ally Bank Review post:

It’s great that they’ll be giving me more interest for my money then my current brick & mortar bank – but what is in it for them? Is there a service charge or any hidden fees somewhere?

I quickly realized that I had no idea how Ally – a very bare bones bank – made money. They don’t offer any sort of loans or credit cards so there is no obvious income streams located on their homepage.

In fact, they only offer 4 products – checking, savings, CDs, and money market accounts. All of these accounts cost $0 to open and have no monthly fees.

I decided to go straight to the source and see if Ally’s customer service would honestly answer the question: “How does Ally make money?”

Surprisingly, they offered an honest answer with no prying:

Our accounts are invested in long-term mortgages and real estate. Ally Bank does not engage in targeted sub prime lending activities, and information on the Bank’s level of loan loss reserves and classified loans is available on www.fdic.gov.

The specifics of the investments are left out, but I respect Ally’s honesty.

Just like big banks, they take your dormant money located in savings, checking, and CD accounts and invest it elsewhere. They can easily afford to pay their customers 1.5% in interest when they’re getting returns above 7% by investing your money in mortgages.

Almost all of us have large sums of money in banks so it’s good to ask these questions and understand what we’re really getting involved with when we sign up for a bank account.

Further reading: here’s a link to the fracational-reserve banking Wikipedia. This goes more in depth about the process of banks holding cash vs. lending it out.

Do you know how your big, online, or local bank makes money?

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Sorry to the FF Fanatics about the lack of a podcast yesterday. I’m in between scheduled interviews and couldn’t get one posted so check back next Sunday for a new episode.

On to the post!

It’s a big change for people to move their money from a brick and mortar bank (your typical local big or local bank like Chase, Bank of America, or “insert town name here” Bank) to an online bank (Ally, ING Direct, or HSBC). People tend to shy away from big changes and when the unknown is thrown in to the equation, the idea of change seems even more impossible.

So today, let’s take a look at the major differences between online banks (OB) and brick & mortar banks (BMB) so you can feel more comfortable and knowledgeable about what a switch of banks means for you and your money.

Interest Rates

OB - This is the biggest selling point for online banks. Because these banks only exist on the internet, they can keep their costs down and give that money back to their customers in the form of higher interest rates on savings, checking, money market, or CD accounts.

Right now, Ally pays 1.29% with their savings account and .50% on their checking account. ING Direct pays 1.10% for their savings and .25% for their checking. Keep in mind that this is after all of the market turmoil, before, the OB’s savings accounts were in the 3-5% range. Over time, this means huge returns for your money in the form of compound interest.

BMB - Interest rates have never been a strong point for BMBs. The national banks have thousands of branches with each one costing millions to build and fill with workers. The interest rates on checking accounts are almost always 0% and savings accounts sometimes get .50% if their lucky. Occasionally, BMBs have high CD rates which you can keep your eye on, but their expenses are just too high to pay out a lot of interest to their customers.

Customer Service

OB – No matter how fast the internet gets or how easy it is to make a call, trying to get a hold of a customer service rep to answer your question(s) can be difficult and frustrating. The things is, many online banks have superb customer service with 24/7 availability for calls because they know that this is an issue for customers. But if you’re the type of person who prefers seeing the other person who is answering your question, then the switch to an OB is going to take some time.

One last thing which I think a lot of people have a question about: almost every OB offers their customers a way to send in checks or cash to their online savings account. It could be refunded postage and you send it in an envelope, depositing it at an ATM, or by printing off an OB sponsored envelope, but OBs do offer this service. I’ve never had to do it and it makes me uneasy to send checks and cash in the mail so I keep a checking account at my local bank for this situation.

BMB - Having the face-to-face conversation ability is a huge selling point for BMBs. No matter how big the problem, you can always go in to a branch, sit down, and discuss the problem. The issue is when you have banking problems that don’t require you to go in to a branch. Many big banks like Chase or Bank of America have so many calls that they try to answer your question through automated recordings so they don’t have to pay 400 people to answer phones. This is never a fun situation and one that you’ll almost never have to deal with at an online bank.

The ability to easily depositchecks or cash at the branch is a big plus for BMBs and something that plagues OBs because many people don’t feel safe sending money through the mail.

The personal touch may be the thing you want out of your bank, and if so, stay with your BMB because an OB may feel a little impersonal to you.

Amount of Products

OB - It depends on the bank, but some online banks only offer a savings, checking, and CDs. They pride themselves on simplicity and doing the job right so they don’t stretch themselves thin with credit cards or loans. On the other hand, some online banks, like ING Direct, have their own brokerage account (Sharebuilder), mortgages, and business accounts.

Still, you won’t be able to hold all of your financial accounts within one OB. They just don’t offer enough products – something like credit cards or student loans are never an option for an OB. The products they have are almost always stellar, but the amount is lacking.

BMB - These banks have so much more money available to them so they can offer an array of products that fit all of your banking needs. On top of checking and savings, Chase offers loans for auto, house, and students; along with credit cards and investment options. Having all of your financial information held at one bank is something I wish I had, but I prefer the quality of products at different banks. Regardless, the sheer amount of products that BMBs offer blows OBs out of the water.

Online Options

OB – This is the second biggest selling point for OBs. They only exist online so you can almost guarantee that their web interfaces are going to be superb. The two OBs I’ve used have had incredibly slick and intuitive web capabilities where after 5 minutes you feel like you know how to do everything. They offer easy transfers, multiple savings accounts, automatic saving capabilities, and the ability to do fun stuff like name your main savings account “The Benjamins.”

BMB - Some of the big banks have quality web interfaces, but there still a step below OBs. They don’t offer as many tools and it’s often difficult to do an easy task. If you have a local bank in your town, this can be even a bigger issue. Perhaps no online banking or a stripped down version from 2001.

Two years ago I asked my bank at home when they were going to update their online banking and they said within the year, but it’s been about 14 months since then. If you do 90-100% of your banking online, then an OB may be a smarter option for your banking needs.

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Every one handles their money differently, so the types of accounts you use for your money will depend on what makes you feel comfortable.

I currently use Ally for savings and checking with a local bank for checking and ease. Like I said above, I wish I had all of my financial accounts under 1 bank, but it’s just not an option for me. I like the high interest rates and web interfaces of online banks, and I like the safety/comfort of a local bank to rely on.

All I ask is that you rethink your banking situation. You don’t want your bank to use your money without giving you anything in return. If that thing in return is comfort and stability, then go for it, but with the amount of options available today with the internet, don’t close all of your available doors too quickly.

Here’s some further reading for any one looking to make the switch to an online bank:

How to Open an Online Savings Account – A step-by-step guide to opening an account including screen captures and easy-to-follow instructions.

Interest Matters: Why Your Money Needs an Online Savings Account – A look at the numbers behind higher interest rates and how much your money can benefit from just a couple interest rate percentage point differences.

Do you use an OB, BMB, or mix for your banking needs?

Photo: Aaron Escobar

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Ally is everything you need out of an online bank. They do everything adequately and there aren’t any huge misses in their approach to online banking.

Let’s run through the review thumbs up, thumbs down style so you can see what parts of Ally I like and the parts that need work.

Thumbs up: Web interface

Personally, this is the most important priority of an online bank. I’m going to be relying on this site to manage my money so it better be pretty on the eyes.

Some of the positives: I like the color scheme of purple, black, and gray. It’s relatively easy to navigate and find what you need even if it’s your first time looking for something. It’s not overloaded with unnecessary features and links. Only the vital information you need is located on the account home page. They use screen space efficiently without being bare or cluttered.

Thumbs up: Easy to create multiple savings accounts

I wrote a post about this topic a couple of months ago. Currently, I use 3 savings accounts – general savings, emergency fund, and house fund – and it takes less than 2 minutes to create a new account. You can also transfer between your accounts instantly. Having 3 different savings accounts allows me to track my savings goals and I can put aside money for an emergency fund that is untouchable.

I wish they advertised the ability to create multiple accounts a little more, but once you know how to create the account, it’s like riding a bike and you won’t forget how to do it.

Thumbs down: No daily running interest counts

I loved how my old online bank would keep a running total of your interest accumulated above your account’s information. I would check my account every couple of days and could see the progress of the account. It was like a morning coffee – it just made your day a little better.

Ally tells you how much your daily accumulated interest is , but they only list that number (which is usually too small to care) and then your total at the end of the month. This is a nitpicky complaint, but I use online banks because of their high interest rates so why not throw your customers a bone and show them how much they’re received in interest from one day to the next?

Thumbs up: Quick, simple transfers

Transferring within your accounts is instant and getting money to your external bank only takes a couple of days. An 8-year old could figure transfers out and you can even schedule transfers for reoccurring dates. This is great for automatically building savings by transferring, say, $50 a month in to your savings from your external checking account.

Thumbs down: No referral system

ING was all about getting you to tell your friends about their bank. They offered you and your referee money, promoted it on every page, and wanted you to know that they’ll hook you up if you tell your friends about them.

Ally’s main page has zero information about referrals. Nothing. Do they not want new members? Do they not want people to talk about their bank? Do they not want to give $10 to a new customer?

Fix this, Ally. I’ll tell my friends about you.

Undecided thumb: Checking account

I also opened an Ally Interest Checking Account in May, but haven’t had much experience with it since I’m abroad. They offer a healthy .50% interest rate on money in your checking account and offer a nice little bill pay feature.

Their biggest selling point is the debit card which offers no ATM fees. Since they’re an online bank, they don’t have ATMs, so you’ll see a small fee but it’ll be quickly refunded. This should be the gold standard for all checking accounts soon.

If I was in America and used this account more, I’m sure it would be a thumbs up, but we’ll have to leave that review for a later date.

Overall: A big thumbs up

Ally does everything you need, without beating you over the head with unnecessary features. Ally doesn’t bother me with e-mail and the one time I’ve called their customer service they were helpful and cheery.

If you’re switching from another online bank, like a new hair cut it’ll take some time to get used to, but after a couple weeks you’ll feel like you’ve been using their services for years.

They are a young bank so hopefully they’ll fix some of my nitpicky complaints soon, but if you’re looking for an online bank, Ally will fit your needs and leave you more than satisfied with what they offer.

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On this week’s episode of The Foreigner’s Finances Podcast I talk with PerkStreet Financial CEO Dan O’Malley about their checking account and rewards debit card.

PerkStreet is leading the pack in rewards offering 2% back on all purchases in the form of gift cards to popular shopping spots like iTunes or Target if you have $5,000 in your account. 1% back is left for anyone below $5,000.

In this episode we discuss why PerkStreet is different than your average checking account, the rewards you can receive using their debit card, how to access your money, and what the future of their company holds.

I’m not an affiliate of PerkStreet and receive nothing if you sign up for an account. I’m just highlighting a company that’s being innovative and deserves attention.

Dan did reach out and offered a special contest for FF readers so check back tomorrow at 9 AM EST to see what special bonus you can win from Perkstreet.

You can subscribe to the podcast’s RSS feed or download and subscribe on iTunes to get every episode delivered to you.

The Foreigner’s Finances Podcast Episode 5

[00:45] – Why the PerkStreet checking account is different

[02:45] – Not a bank, but still insured

[04:00] – Why customer service is so important to PerkStreet

[05:30] – How to access and deposit funds with the PerkStreet debit card

[09:00] – The cash back specifics

[14:00] – Why PerkStreet can afford to provide high perks to their customers

[16:00] – The birth of PerkStreet and where it’s headed

To learn more about PerkStreet, visit their site or check out their recent feature in The New York Times. Remember to come back tomorrow to take part in a special PerkStreet Financial contest!

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Have you ever read a Yahoo! article about personal finance and looked at the comments? There’s usually one crazy person who swears off everything about banking or investing and claims the world is ending so they’ve strapped their life savings to the floorboards in their kitchen.

Banks that are FDIC insured provide security up to $250,000 so it’s a good idea to hold your money in a bank, but people are often surprised to learn there are alternatives to using banks. They’re called credit unions.

Credit unions get a bad rap because the name has two words with negative connotations – credit and union. In reality, credit unions are one of the most pro-consumer entities in the community today. A credit union is owned by its member and exists to supply reasonable credit, banking services, and customer service to its members.

Let’s look at the pros and cons of joining a credit union for your banking needs.

Pros

- Not-for-profits

Have you ever had a bank try to sell you a mortgage when you just wanted to deposit your paycheck? It’s slimy. Big banks are in it for the bottom line and will go to any lengths to get you to give them more money.

Credit unions, on the other hand, are owned by its own members and provide adequate and moral banking to its members. They take a cut to make the bank grow, but any other surplus is given back to the customer in the form of better rates or service. The tricks and games aren’t a part of a credit unions agenda – they have the needs of the consumer in mind at all times.

- Based in your community

The world’s getting smaller, but credit unions are one of the few organizations out there that still hold ties to your local community. Many credit unions are restricted to a certain geographical location which means you can become a part of a group of like-minded people – your neighbors. This usually leads to…

- Superior customer service

This is the #1 reason a lot of people join credit unions. They exist because you – the customer – exists and will do their best to please you.

The members, employees, and board members are going to be people you know and live near so they’ll be a level of togetherness and trust when you join a credit union. No one will try to sell you a loan you can’t pay, instead, you’ll feel safe with your bank because the way they approach customer service and the organization/customer relationship is totally different than that of a big bank like Chase or Bank of America.

- Same bank services as your big bank

Auto loans, mortgages, savings accounts, retirement accounts, and checking accounts are all available at credit unions. They may have a slightly different name for an account, but credit unions offer almost all of the accounts your normal bank does.

A vast majority of them are also insured – 95% of state chartered credit unions are insured and any federal credit union is insured up to $100,000 per account and $250,000 for retirement accounts. Side note: always make sure you’re bank or credit union is insured before doing business with them.

Last, credit unions provide equal or better savings rates and better loan rates because they don’t have the bottom line to constantly worry about like big banks. If you’re a bare bones banker – like 97% of the world is – then credit unions are more than sufficient for your needs.

Cons

- Limited to certain areas and communities

Credit unions are either centered around a community or certain group – like veterans. Therefore, if a branch isn’t located near you, you’re out of luck. Shopping around is also difficult or impossible since you must belong to the certain community to join. This means if you’re local credit union is subpar, you’re out of choices.

- Web interfaces are lacking

Online banks are so popular because they understand that today’s banking customer uses the internet to bank and rarely visits a branch. Because of this, they center their business around their online presentation. Easy transfers, customization, and interest tracking are just some of the options my online banks offers.

I don’t belong to a credit union, but the ones I looked up had pretty dismal web interfaces. They often don’t invest a lot of money in to web design and may not even provide online banking. This may not be something that worries you, but if you do a majority of your banking online you may tire of the lack of options.

- Lack of funds

Because credit unions are small they avoided a lot of the bad loans that brought down the financial industry 2 years ago. In a time where a record amount of banks were closing, credit unions were holding their own. Big banks have an advantage though – large amount of funds and the abilitiy to get credit. According to Credit Union National Association in 2009, credit unions held $885 billion in assets, compared to $13.4 trillion for big banks.

Credit unions are not-for-profit and tax-exempt which means they must turn a surplus in order to prosper and survive. Many do becuase they’re managed so well, but having limited funds to pull from can be troublesome. If your credit union is insured, this doesn’t matter much, but it could cause a minor headache if the credit union goes under.

- Expenses still high

They remain small and conservative, but they still spend money on workers and the building. Therefore, their overhead will probably be considerably more than an online bank that exists solely online. Online banks return this money in the form of higher interest rates on savings and checking accounts. This isn’t the strong point of credit unions, so a lot of people are more than willing to give up extra interest in return for superior customer service and trust in their banking situation.

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If you’re interested in joining a credit union or just researching the topic more, search Google for “credit union” and it’ll return the credit unions in your area.

What do you think of credit unions? Would you join one? Are you currently a member?

Photo: nnecapa

Last week I wrote about my experience getting denied by an online bank with an international wire transfer. I talked about the importance of figuring out if your bank allows these wires because if you need them in a dire situation, it’s going to be too late and your loan is going to go unpaid or your emergency is going to be difficult to fund.

I found it odd that the big banks – Chase, Bank of America, Citi – all accepted these wires, but the online banks – Ally, ING Direct, FNBO Direct – didn’t. I’m sure a lot of people have been inconvenienced by this fine print rule and it just doesn’t seem like something that the state-of-the-art online banks would omit from their banks.

So when researching the last post about international wire transfers, I asked FNBO Direct why exactly they didn’t accept international wire transfers. They were kind enough to write back with this answer:

“Since FNBO Direct is an online bank, we need to be able to validate the source of all funds. As an on-going effort to fight money laundering, funds from outside of the US are difficult to confirm and validate. Therefore, we currently do not process any incoming or outgoing international wires.”

Let’s look at FNBO’s rule a little closer.

Online banks are efficient. They don’t like customers that require a lot of attention and are willing to cut their loses if it means making things easier overall. It seems like an international wire transfer is a pain in the butt for banks to deal with. It probably requires a couple of people to work on the transfer and this isn’t a justified use of company time for them.

They have too much to lose. The biggest fear of any bank customer is if your bank misplaces your funds. We trust our banks and if they lost my money, I would be shaken. Like the customer service rep said, “[these funds] are difficult to confirm and validate.” There’s a lot of shady activity that goes on with internationally with money. People trying to beat exchange rates, money launder, and avoid taxes are just the tip of the iceberg. For the amount of work involved and the chance of a huge problem arising, online banks would rather just not deal with this wire.

Online banks are still small. Most are efficient, but this usually means 1 worker is doing a lot of jobs. They don’t want to add on “Person in charge of international money wires” to someone’s job description and they certainly don’t want to hire new workers – inefficient use of money – to be in charge of these wires. Not enough people in the business means they can’t answer every request and this is one that probably isn’t an issue that often, at least compared to other banking issues.

This Has to Change

And I hope it’ll be soon. The world travelers out there are using online banks and I’m sure these banks get a good amount of complaints about not only no accepting international wires, but also not really advertising it all that well. In the previous post about international wires I still can’t locate the prices behind every banks international wire fee.

I understand that it’s a lot of work for these banks to accept the wires, but it’s something they need to do.

I’m disappointed in ING Direct for denying our wire,  making the process go on another week, and costing me an extra $10 to re-send the wire to my big bank. Should I have checked it out before hand? Of course. But it’s not like they had this information on the front page of their website.

I, like a lot of people who get denied, assumed it was common place for an online bank – who are so up-to-date with how people use their bank accounts and money – to allow me to send money from an international account to an American online savings account.

Bottom line: it needs to change, but who knows when it will.

Have you had any issues with international wire transfers? Share your stories in the comments and let us know what your banks are doing about them.

Photo: Dano

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We sent the transfer to her ING Direct account since it would be easier for her to transfer my portion to my account. Sending money internationally from the post office in Japan takes anywhere from 10 to 21 days.

Unfortunately, I received a letter from the bank around the 14th day. It stated that the funds had not been transferred because the bank we were sending the money to – ING Direct – couldn’t accept international wire transfers.

Thankfully, my home bank does so I went back to the post office the next day and had it re-sent for another ¥1,000 ($11) . The funds eventually arrived in my bank account about a week later.

The situation was a huge pain, but we were lucky. We didn’t need that money to arrive home for a mortgage, credit card bill, or student loan due that week. A lot of international wire transfers do have a sense of urgency to them, though. The money needs to get where it’s going and usually fast. Maybe the transfer needs to fund a vacation, an airplane ticket,  a hotel, or an emergency.

Before you go abroad, check with your bank to see if they accept international wire transfers.

Do yourself a favor and take 5 minutes to search your bank’s site for the information. If you can’t find it, call them and ask. If I would’ve done this before I left last July, I would’ve saved having to leave school to go to the bank, having to pay another ¥1,000 to re-send the funds, and a week of headaches.

Below I’ve inserted a cheat sheet for you to check if your bank accepts international wire transfers as well as a link to the page explaining the costs, limitations, and other details of their international wire transfer rules.

Does Your Bank Accept International Wire Transfers?

*Reminder, each bank charges a fee for receiving wires, on top of the fee of sending it*

Chase – Yes, but must sign up

Bank of America – Yes ($15)

Wells Fargo – Yes

Citi – Yes

ING Direct – No

Ally – No (p.4)

FNBO – No

HSBC – Yes ($12)

If your bank isn’t included in the list above, let me know in the comments and I’ll add it.

Photo: Neubie

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Today, I’ll show you how easy it is to 0pen multiple savings accounts by opening a “House Fund” at my bank, Ally. Someday I’d like to own my home so I’m going to start a defined savings account just for that savings goal.

The process takes less than 5 minutes so let’s check it out.

Opening the New Savings Account

- Once you’re signed in to your account, you should be at your account list. Below your accounts there’s a little blurb and a link that reads: “Add another account.” Click that link.

- It’ll feel like you’ve been logged out and they want you to open an entirely new account. If you notice in the top right though, you’re still signed in. They don’t advertise multiple accounts, but you can open them. Choose “online savings” and click “open account.”

- You’re brought to the application process.

- In Step 1 choose the “start a new application” option.

- in Step 2 choose “online savings account” and decide if you’d like to fund the account. You can do this via your original account or at a later time.

- In Step 3 choose “individual” unless you are opening the account with a spouse, then choose “joint.”

- You’ve already added an owner when you first signed up for the account, so they should have your information automatically filled in once you choose individual or joint. Below is what my screen looked like.

- Step 4 requires your electronic signature. Read the Agreements and check the box. Click “Submit Application.”

- After about 20 seconds, the new account is opened. I chose to make a $5 deposit and Step 5 asks if I want to transfer from within my other Ally accounts, make an online transfer from another bank, or make an opening deposit later. Choose whatever options suits you and click “next step.”

- Step 6 is already complete because you’re already a member and set up online banking. Click “next step.”

- Congratulations! The account is officially open and available to access.

You’re now free to do as you please. If you’d like to name the account, click “go to my accounts” and click on your new account named “online savings.” Once there, look at the right sidebar and at the bottom it reads “Edit Nickname”. At the new screen you can easily edit all of the account names as well as the external accounts (accounts you transfer to/from).

Your new savings account has its own account number and is a separate entity from your initial savings account.

You can now transfer money between the accounts instantly so if you get paid and want to send $500 to your “Emergency Fund”, $200 to your “Brazil Vacation Fund”, and $50 to your “Charity Fund” you can in 5 seconds. You can do it one-time or set automatic transfers with options for weekly, every 2 weeks, monthly, every 2 months, quarterly, every 4 months, or twice a year.

It’s a little odd that Ally doesn’t advertise the multiple savings accounts, but once you get through the awkward “am I doing this right?” stage, you’re in the clear and enjoying your new account.

Do you use Ally? What do you think so far?

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Opening a multiple accounts allows you to create defined saving goals for things like “new laptop” or “vacation to Hawaii”. You can also create barriers within your money to help you visualize your savings progress.

These accounts act the same as your primary savings account; they still pay the same interest, they’re still attached to your bank, and they take less than 90 seconds to open.

Let’s take a closer look at the benefits of multiple savings accounts.

1) Create defined savings goals with easy transfers between accounts

Look at it this way. When you were twelve and you wanted to save money over time for a video game, you would store extra cash in a piggy bank or in a special place for that goal.

Multiple savings accounts are separate piggy banks for your savings goals. They allow you to see your savings grow over time as you save up for those big purchases. With the new accounts you don’t have to empty your savings or pay for an item over time on a credit card.

If you’re saving up for a car, you can create a new account called “Car Fund” or “OMG I want a Civic sooooo bad”. Whatever you like.

Transfers between your accounts are instant for most online banks and you can schedule transfers weekly, bi-weekly, or monthly which helps you easily grow your savings. You can create automatic transfers to your “Car Fund” account from your savings account.

For example, here’s how I would set up a transfer:

$2,500 paycheck deposited to checking on 1st of the month —–> transfer $1,000 monthly to savings on the 3rd ——>transfer $300 every month for 6 months to Car Fund on the 5th

Set this up once and it’s done. Your savings will grow with interest why you watch Glee or take a nap.

Your savings goal could be as small as a new phone or as big as a house. Whatever it is, it’s important to work towards the goal instead of funding it with a credit card and worrying about the consequences later.

2) Create an emergency fund

We’ll talk more about this later this week, but an emergency fund is an account with 3-6 months of living expenses that you only use for emergencies (job loss, accident,medical, etc.) I have one sub-savings account labeled “Emergency Fund” and every now and then I transfer money into this account. I never touch this money and treat it like I don’t have it. That way I’m not tempted to dip into it for a vacation or new laptop.

Having an account labeled “Emergency Fund” makes it more difficult to justify spending on a new iPhone or a trip to Vegas. Sometimes guilt is the best savings motivator.

How to Open Multiple Savings Accounts

On Sunday I’ll post a detailed write-up with screen captures showing how easy it is to open a sub-savings account at my online bank, Ally, but today I’ll give you a rough overview that will hopefully guide you through the process at your respective bank.

1) Sign in to your online bank.

2) Find the “Open new account” button and choose savings account. I’ve done this multiple times. It feels like you’re doing something wrong, but it’s fine. You’ll receive a new account number.

3) Fill in your information and name the account.

4) Fund the account if you wish.

5) You’re done. Set up a transfer, leave it be, or play around with it. Transfers between accounts are instantaneous for most online banks so test out how easy it is to transfer money.

You can also close the account at any time. Just transfer out any money in the account and they will ask you if you’d like to close the account. This may differ depending on the bank.

Won’t this Affect How Much Interest I Receive?

No. If you split up $3,000 into three accounts of $1,000, you’ll still receive the same interest.

Don’t believe me?

$3,000 in an account for 10 years that pays 3% will have $4,031.75

$1,000 in an account for 10 years that pays 3% will have 1,343.92 – exactly 1/3 of the above amount

Your money will still return the same amount so get those multiple savings accounts opened today and start working towards your goals.

Photo: annia316

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