Interest Matters: Why Your Money Needs an Online Savings Account

The first purposeful money move I ever made was moving a couple hundred bucks into an online savings account and out of my 0% checking account that my momsigned me up for at the local bank when I was 17.

If more than 95% of your money is sitting in a 0% checking account right now, this post is for you.

Because of inflation your money will only lose value if it sits in a checking account and doesn’t receive any interest. If you’re younger, you have the chance to make a sizable gain on your savings if you a) put it in an interest-receiving savings account and b) continue to throw large sums of money into it every year – no exceptions.

Luckily, online savings accounts offer pretty good rates (but low right now) where your money can receive interest and grow over the next couple of decades. These banks keep their expenses low by only existing online so they can offer better rates since they don’t have 2,000 locations you can visit around the country.

Moving your money to an online savings account is the easiest and most simple step to get a handle on your money.

I was recently playing around with an interest calculator the other day and I even surprised myself with how much those little interest rate numbers (1%, 2%, 3%) can add to your money over 20-40 years.

Check out some of these scenarios:

- A 23 year old with $5,000 in savings moves his money to an online savings account with ING Direct

- His money will receive an average of 3% over 30 years

- Every year he adds $15,000 in savings to his account

- Total put in account after 30 years: $450,000

- Actual total in account because of interest: $742,500!!! ($292,500 gain)

Occasionally the big banks like Chase or Citi will offer “special” savings accounts with rates of ridiculously low rates like .75%. Because they’re overhead is so high with tangible buildings, they can’t offer the same deals. Here’s how that same scenario would look with a savings account at a big bank.

- 23 year old with $5,000 puts his money into a savings account at Chase

- His money will receive an average of .75% over 30 years

- Every year he adds $15,000 in savings to his account

- Total put in after 30 years: $450,000

- Actual total in account because of interest: $511,000 ($61,000 gain)

Now some of you may say, “wow, that’s amazing. I’ll sign up for an account next month.” Well, next month often turns into next year, which often turns into “when the kids go to college I’ll start saving more”.

If that same 23 year old waits 10 years to start his online savings account at 33 his money would look like this:

- At 33 puts in $155,000 into an online savings account at 3%

- Continues to add $15,000 for 20 years

- Total put in after 30 years, but starting 10 years late: $450,000

- Actual total in account because of interest $693,600 ($243,000 gain)

Because he waited 10 years to open that savings account and start using his money to make more money, he cost himself almost $50,000 in interest.

Do yourself a favor and open an ING Direct savings account (not an affiliate link – I just love them).

If you want a free $25 for signing up, e-mail me at austin @ foreignersfinances (dot) com and I’ll send you a referral that’ll also get me $20.

As a special thank you, if you sign up this week I’ll give you 1/2 of my $20 giving you $35 for signing up. No strings attached; I’ll send you a $10 check through my ING checking account.

Don’t be the person saying “I should’ve done that” and get your money going today.

Photo: Borman818

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