Mint Finance Corner: Open Market vs Savings Account
I have had a lot of friends who have asked me, hey what is a better savings account XXX or YYY for returns and I give them the same meme face of “Are you serious?” and then I respond with hey if you want to collect pennies on the dollar then by all means put your money in a savings account. It is important to have a savings account as the place to store away nuts in case of emergency, just like a squirrel does for winter. The squirrel does not expect the nuts to multiply magically as much as his stomach would love that but that is the point of a savings account, at the end of the day it is a place for savings and not investments. Remember the game-changing rule of 50-30-20? Well a savings account is for savings.
There are banks out there that try to entice savers with higher yields such as Ally Bank and Synchrony bank both offering a little over 1% yield for short term CDs, while the longer CDs offer about 2%. Now remember the rule of compounding? This 1% is not compounded but simple interest. Say you put $5,000 then after one year you would have $5,050 and after two years you will have $5,100.05. Woot in two years you made a $100 that is not even enough money to go to Coachella for one day. And don’t forget; you owe ordinary taxes on the interest. This is a good way to go broke slowly!
Now, I understand you want that money to be safe, you see the market going up and down and don’t have the stomach to ride the crazy waves that is a stock, which is why you were looking at high yield savings accounts as you want your money to be safe, but there are other ways to have a higher degree of safety and get a slightly higher return than the 1%. All this comes with the mindset of how long you want the money to sit in the market.