Snarky Behavior

Dropping Knowledge: Online Banking

June 26, 2008 · 1 Comment

Earlier this week Ben Bernake made it known that the Federal Reserve was severely worried about rising inflation rate of the US dollar.

Normally this rate is about 3.5% annually.  But because the Federal Reserve has increased the money supply to combat a recession, the expected inflation rate going forward is expected to be much higher.

In an environment of rising inflation, it is important that you not have your money “under a mattress,” as they say.  Every day your dollars are not earning a return, they are losing value, through inflation.  If you are not investing your money in anything, the real rate of return for “holding” dollars is equal to the rate of inflation.  That is to say, by standing still, you’re losing value over time.

Now, if you are paying money for a checking account, stop whatever it is you’re doing right now, and call to either a.) demand a fee-waiver or b.) cancel the account.  There is absolutely no reason to pay anyone to hold your money for you in today’s day and age.

Once you have a free checking account linked to paper checks (with no minimum balance required), find out how to access and manage this account online.  Any bank worth a damn will have this option, and you should be taking advantage of it.

NOW the gravy train…

Either through ING Direct or HSBC Direct, set up an online checking account (1.74% or 2.25% returns, respectively).  I personally use ING Direct for convenience; let me know if you’re interested and we’ll both get referral bonuses. Be sure to link your paper-check account to this one.  For a more in-depth comparison between the two, go here.

Additionally, sign up with a savings account with one of these sites (3% or 3.5% returns, respectively), and be sure to link your savings to both checking accounts.

The ONLY downside of online checking that I can see is that transfers usually require a short processing timeframe of 2-3 business days.  However, your checking account can include an overdraft amount of up to $500, so this isn’t a tremendous concern if you’re diligent.

Keep on track of all of your accounts in one place such as Mint.com, Microsoft Money, or Quicken.

SUMMARY

You may not think this is worth your time, but think of it this way.

Say  you tend to keep an average balance of $1500 in your checking account (enough to pay the rent and withdraw cash if you need it).

If you only open an online checking account, at a 1.74% return you will earn an additional $26 for the year.

If you open an online savings account and set up an automatic transfer schedule before your rent is due, you will earn an additional $45 for the year assuming a 3% return.

Considering these accounts take about 10 minutes to set-up, the Fed will probably soon raise interest rates (meaning higher returns), these accounts may very well be worth your time.

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