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High Yield Savings Accounts and Banks
It wasn’t until high school when my dad signed me up for a student bank account at Wells Fargo. I remember receiving my first debit card and signing up for a savings and checking account. I had heard about the concept of interest and savings account should earn you back a bit of money each month.
I was too young at the time to understand minimums and that the large banks actually pay an incredibly small fraction of an annual percentage yield. I never received savings for the small sum of money I had continued depositing into the account.
One day, I threw up my hands and said, “What’s the point of this! Why do I have money locked into a savings account if interest doesn’t exist.”
I transferred the money into my checking and deleted my savings account at Wells Fargo for years.
Savings, Savings, Savings
It wasn’t until I read “I Will Teach You to Be Rich” by Ramit Sethi that I understood about High Yield Savings Accounts. In the book, Sethi argues to stay away from large financial institutions as much as possible due to their lack of customer benefits.
Sethi specifically spoke to the savings situation and how he banked with Capital One for keeping his life savings. I had seen Capital One cafes throughout cities but never understood the model until I did my research years ago.
The idea is that virtual banks (like Capital One) reduce overhead costs by limiting their brick-and-mortar branches and use those savings to drive back to the customer. After signing up with a Capital One 360 Savings account, I realized the great percentage return by keeping money in the bank each month.
I was enthralled to find this way of making passive income. The money would pay for my Spotify subscription (at the time. I have since consolidated accounts for more savings) or a lunch.
Pandemic Slashing APYs
It wasn’t until the pandemic hit in 2020 that I saw the APY decline from 10% to a measly .04%. My way of making money passively had been slashed. A fraction of a percentage for my Capital One savings? (Keep in mind that Wells Fargo, Chase, and other institutions reduced their APY to .01% during this time).
I sat on this money in my savings and priortized building my investment portfolio to seek returns on my money. If you’ve been following this blog for a while, you know that every dollar has a job.
A Rebound?
Last week I saw something interesting on my savings account in the week of federal interest rate hikes. I saw that the APY had increased from .04% to .06%. I was ecstatic because I knew my bank was looking for ways to continue improving the situation.
It’s projected that these savings percentages could increase to 2% this year which is signaling a shift from buying to saving for the economy, cooling off an overinflated market.
I’m excited to see where the economy heads. We’re steering into uncharted territory and I hope we’re prepared.
Have a great week,
JT