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Beat the Bank

Beat the Bank

How Banks Rake It In

  • Banks earn money by lending the money you deposit to other people.

    For example, if you deposit $1,000, a Big Bank will pay you 0.5 percent to hold on to that money, and then they’ll turn around and lend it out at 7 percent for a home loan.

  • Fees

    • Overdraft fee

The Nuts and Bolts

Checking Accounts

Checking accounts let you deposit money and withdraw money using debit cards, checks, and online transfers (a.k.a. Girokonto in Germany).

Traditionally, banks paid no interest on checking accounts, but this is changing. Most online banks now offer checking accounts with interest, blurring the line between checking and savings accounts.

Savings Accounts

Key difference between checking accounts and savings account:

  • Savings accounts pay interest (although, as we saw, the lines are being blurred with new interest-bearing checking accounts).
  • You withdraw money regularly from your checking account—but you rarely withdraw from your savings account. Your savings account is really a “goals” account, where every dollar is assigned to a specific item you’re saving up for.

Online banks usually pay a higher interest rate for savings accounts—about 2.5 to 5 percent, which would produce 25to25 to 50 interest per year on that 1,000,comparedwith1,000, compared with 5 per year on the Big Bank savings account. One downside: It can take a few business days to access your money.

Why You Need Both Savings a Savings Account and a Checking Account

Having your money in two separate accounts makes money management easy.

Finding the Perfect Account Setup

  • Basic option

    A checking account and a savings account at any local bank

  • Basic option + small optimization (recommended for most people).

    Open accounts at two separate institutions:

    • a no-fee checking account at your local bank (immediate access to your money and the ability to transfer cash to your high-interest online savings account for free)
    • a high-yield online savings account.

  • Advanced setup + full optimization

    Consists of several checking accounts and savings accounts at different banks, usually to eke out the most interest and services that various banks have to offer.

Optimizing Your Bank Accounts

You shouldn’t be paying fees or minimums. The key to optimizing an account is talking to an actual customer- service rep, either in person or on the phone.

  • Avoiding monthly fees
  • Almost all bank fees are negotiable