A NOTE FROM THE AUTHOR: This week we’ll be focusing on the basics of savings. There’s been a lot going on throughout 2021 so far. Remember that you should be focusing on your foundational financial bedrock instead of things like Bitcoin. Once you get these foundations in place, you can begin to explore the wilder side of money.
On a side note, you may see overall formatting and changes to the blog. My goal is to continue finessing this blog to help the maximum amount of people. Cheers!
Investors Are Dramatics
As I’m writing this on Monday, December 11th, my investments are taking a tumble from the weekend. It seems that the market isn’t too kind today after reports of stocks dropping from record highs. As of yesterday, my Bitcoin suddenly dropped, wiping out my exponential profit to a measly $34. As of this writing, Bitcoin fell to $33K from the $40K high last week.
While investors typically worry over these investments like a matter of life or death, we’re all being melodramatic. Why? Because this mindset shows that the world of finance is filled with emotional highs and lows. In reality, we’re all doing okay. Why? Because at the end of the day, we all have savings to fall on.
My Experience with Savings Account
When I was 13-years-old, my dad opened my first checking account at Wells Fargo. I remember the banker leaning closely over the desk. He asked, “Would you like to open a savings account?”
My only experience with banks at this point had been what the American school system had taught us. If I have savings, I should see this thing called interest applied to my account. I make money by keeping my money in a piggy bank. What’s not to love?
I told the banker, “Yes, I’d like to open a savings account.”
When I began to use the savings account, I noticed I was making pennies. “This is absolute trash! Why don’t I keep my money in the checking account so that I can have quick access to it? This trouble is not worth pennies,” I thought. I did just that. Boy, I was wrong.
It wasn’t until years later when I read Ramit Sethi’s “I Will Teach You To Be Rich,” that I grasped how to properly use a savings account.
Savings Research
There’s a lot of research that should be going into your savings account. One of my favorite financial websites is bankrate.com. This is a website geared towards guiding you through life honestly. Need to take a loan? Bankrate. Need to buy a home? Bankrate. Need to compare car insurance? BANKRATE!
For today’s demonstration, I’ll be browsing through the savings portion of the website to compare which account has the best APY (Annual Percentage Yield, the percentage of interest you’ll get back each year for holding the money in the account). The higher the percentage, the better.
As of January 2021, Vio Bank has the highest APY at 0.60%. As you can see, you’ll have a list of banks to stash your money.
You’ll typically see the acronym HYSA when it comes to savings. That’s because this means a High Yield Savings Account. This is a fancy term that means the bank is entirely online and you’ll be doing transactions through a browser or app. Banks forfeit brick-and-mortar locations to pass the savings back to you. Yay!
COVID Impact
In 2019 my account’s APY of nearly 9% is amazing compared to today’s high of .60%. That’s a HUGE difference. COVID caused the savings rate to swiftly decline through the Fed’s interest rate decrease to the current 0%. When times are good, the government encourages you to save. When times are bad, Uncle Sam wants you to spend.
Although these rates are incredibly low, should you forget about savings? Absolutely not. Remember you should be set up regardless of the economic climate.
Actionable Advice
Your financial journey should begin with savings. Save up to 6 months of your finances and lock it down in a savings account.
Don’t obsess over rates. Rates often change every month. Once you find an HYSA, lock it down and move on with your life.
Do NOT trust the big banks. I’m talking Wells Fargo, Chase, Bank of America. These banks promise to be your friend but they’re the type of friend that never helps you back when you need a favor.
With COVID, savings account APYs are sad. Focus on making money in today’s economy.
See you next week.
-Jordan