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Opportunity is a stern goddess who passes up those who are unprepared with liquid capital.
– Benjamin Roth
It’s one thing to live through historic times. But history is usually apparent only in hindsight and the lessons we learn are usually shaped by the stories that people tell after something happens. It’s easier to connect the dots looking backward and think “Of course, it’s obvious things had to happen this way.” But reality is way messier than The Big Short, and sometimes even when you are living through opportunities, you don’t have access to all the pieces of the puzzle.
That’s what Benjamin Roth’s diary showed. Right after the start of the Great Depression, the 38-year-old lawyer realized that he was “living through an historic thing that will long be remembered” and he decided to keep a diary chronicling everything that was going on in America. He recorded his thoughts on all aspects of the Great Depression – politics, the economy, the stock market, the Second World War, and many other things. The diary is an eye-opener, because it shows something really useful: Times change, but human behavior rarely does.
Roth was a smart man, and he spent time studying market cycles and trying to figure out where the stock market was going. He was even an early version of what we consider a value investor, following stocks and studying them diligently. He had a strong conviction in the 1930s that while everyone was lamenting the end of the stock market, it was a good time to buy – but sadly, he had very little cash saved up to invest in the market. In 1937, he predicted that the depression had ended, only to see the market crash again, and he was humbled. Throughout all of this, his one lament was: A lack of cash when he needed it.
Whenever market cycles occur and experts try to predict when hard times will end, Roth’s testimony is a lesson that it’s futile to time the market: The most you can do is always have a healthy reserve of cash to take advantage of opportunities when they present themselves. And for the first time in my 15 years of investing, Cash is King – with interest rates making it not just an easy decision to build savings but also an attractive one. Here are my favorite banks to help you make the most of your savings while also having a great banking experience.
How did I choose these banks?
To pick the contenders, I looked at a few factors:
Well-known names: Since 1934, 5400 banks have closed down in the United States. But the more reputed the bank, the bigger its operations and better its buffer and ability to handle a crisis.
Verified: Do they actually provide the interest rates they promise or is it a teaser rate for a temporary marketing strategy?
Availability: Anyone living in the United States must have access to these banks, without any special requirements or conditional clauses.
Consumer protection: The FDIC insures your money up to $250,000 – We have to make sure that the bank is covered under this program, just in case.
But I’m not looking exclusively at banks. If you stick around till the end, you’ll get to see some bonus options as well to use your money smartly. None of what I’m about to tell you is paid sponsorship and there are no affiliate links. These are products I genuinely liked and enjoyed using, and wanted to share.
Ally Bank
This is one of my favorite banks for beginners and pros alike – I’ve been a customer for over a decade, and Ally Bank is my go-to for just about anything related to online banking. Here’s what they give you:
Unlimited, free accounts
24/7 customer service
No monthly maintenance fees
No minimum to get started
Savings interest rate of 3.75%, Money market account interest of 4%
They also offer High-Yield Certificates of Deposit (CDs) that pay anywhere from 4.5% (for 12 months) to 5% (for 18 months). But if you break the deposit before the term ends, you would have to pay a penalty. They have an option to work around that too – they offer a no-penalty 11-month CD that pays 4.35%, where you can take your money out anytime after the first 6 days.
Which is your favorite banking service, and why? Let me know in the comments.
According to me, this is a really good bank that provides all-round utility if you want the “entire banking package” as opposed to looking for a high-yield savings account alone. But the company does have a couple of downsides which might be worth paying attention to. First, they are “online-only”, so if you feel like paying a visit for some in-branch activity (in this century?) then you can’t. Second, they are exposed to a high amount of auto debt, and this is being highlighted a lot in the news lately.
Finally, their interest rate is good, but it’s not the best out there. So if you’re looking for alternatives, the next pick is:
LendingClub
LendingClub started out as a company that offered peer-to-peer personal loans and it has now evolved into an online bank. From what I can tell, they actually seem pretty good. A caveat here is that I have not tried them out personally, but the reviews seem promising, and as far as yields go, they could be a strong contender. They offer:
A 4.25% interest rate on savings on a minimum deposit of $100
No monthly fees
A debit card linked to your account
They won’t charge you for using an ATM – Instead “it calculates the amount of ATM fees you incurred during the month and automatically rebates your account.” Now, just to be clear, chasing the highest yield might not be worth it when they have competitors with the benefit of a longer, proven track record. In this case though, if you’re looking for a slightly better rate, it’s a promising candidate. Next, we have:
Wealthfront
Just to be clear, Wealthfront was a paid sponsor of my channel in the past – but this time there is no financial interest for me in you signing up. It’s just a platform I genuinely liked, and I used their products before they reached out to me. They have some perks worth talking about:
An online savings account paying 4.3% interest on all balances.
No fees, no minimums, and an FDIC insurance of $3 Million through a “Sweep program”. Your money is held with partner banks which enables a higher insurance limit.
Unlimited fee-free transfers.
I know this sounds like an ad read, but I’m just getting the satisfaction of talking about a product I use myself. Their account is great and easy to use, their rates are competitive, and the portal also offers some great tools that you can use for financial planning. You can pay bills through your account directly, and if you need cash, they’ve got 19,000 fee-free ATMs.
Anyway, as a customer of Wealthfront myself…I will say: their account is great, it’s easy to use, their rates are extremely competitive, and – they offer some really good financial planning tools. They also now have an option for you to use your account to pay bills, and they’ve got 19,000 fee-free ATMs in the event you need the cash.
There’s not much of a catch: Except maybe that they don’t have a physical location, like almost everything else on this list. But they make giving you a great experience their top priority so that they can motivate you to invest with them down the line – because of that, their service is great. And even though I’m really happy with them, if you want an even higher interest, there’s
CIT Bank
Not to be confused with CitiBank – CIT Bank gives you a few different options:
Savings Connect account – 4.5% Interest on a $100 minimum deposit.
Platinum Savings account – 4.75% on balances above $5,000. The catch is that the interest is 4.75% only for the amount above $5,000 and 0.25% up to $5,000. So this is worth it only if your deposit is more than $50,000. Otherwise, just pick option 1.
CDs with attractive rates – A 5% CD can be locked in for 6 months, for a minimum deposit of $1,000. This comes with a penalty for breaking the deposit early, but if you want a no-penalty option, they pay 4.8% and it’s a low-risk way to earn solid interest on a liquid account (no pun intended).
All of this comes with no monthly maintenance fee, and there are zero fees on many services. If you use third-party ATMs, they also reimburse you up to $30. Again, this bank has no physical locations – but when was the last time you walked into a bank? It could be small price to pay for a much higher interest rate than the “old-school” banks out there. Now, if you want a zinger with one of the most ridiculous options ever, we have:
Redneck Bank
I’m not even kidding – that’s what it’s actually called. I wonder how they decided on a name like that, but it is what it is I suppose. If you want to check out a website with neighing horses, bleating goats, and a housefly that you can chase around with your mouse cursor, check out Redneck Bank – “where banking’s funner” according to their motto (I’d really like to meet the guy who designed this site).
Anyway, for all their bizarre UI, they offer some pretty good features:
Checking account: 4.85% yield up to the first $15,000. This is perfect if you want a good rate on your money but don’t have tens of thousands of dollars to try to maximize it all in one place.
No monthly fees, and no minimums.
FDIC insured.
Their reviews are actually pretty good, and for those who know them, they seem to be a popular option.
Not a bank, but…
These are the best savings accounts – but there are some other options out there that let you earn a lot of interest, without technically being a bank.
For example, Vanguard has something brand new called a “Cash Plus Account” with 4.25% interest. Yes, that’s lower than some other options above, but it’s Vanguard! They’re practically the foundation of the investment industry. On top of this, it’s a product with no fees, no minimum balance, absolutely free, and with up to $250,000 worth of FDIC cover. This is worth paying attention to. But because it’s a “pilot program”, not everyone can access it right now. And also, you can’t use it like a bank, and there are no ATM cards attached – but it’s still a great option from a reputed company.
Vanguard has some other options – their money market funds VMFXX and VUSXX pay between 4.7% to 4.8% interest, with a minimum investment of $3,000. Now, the “risk” with money market funds is that the fund can “break the buck” in catastrophic scenarios – i.e your $1 share could be worth slightly less if everyone cashed out at the same time like a bank run.
But when has this happened in the past? Only twice in history: When Lehman Brothers went bankrupt in 2008, a fund that held it settled each $1 share for… 99 cents. And the other was a small institutional fund, which broke the buck in 1994, and paid back 94 cents for every $1 invested. The chances are extremely rare, and protections have been put in place to prevent such situations from repeating – but it’s not 100% impossible. The higher risk you take on here gives you a slightly higher reward.
Vanguard isn’t the only player in the game:
And if you have your own preferred brokerages, you can search them online to see which money market funds they offer. With these, you might be able to get a slightly higher interest than a savings account.
On top of that, you have Treasuries, which are paying 4 to 5% depending on the term. But to get the full benefit of these, you have to lock up your money. On the other hand, if you are looking for a place to diversify your extra cash, these could be worth looking into.
The point of this discussion is not to select the best of the best – but to point you in the right direction to begin research. One thing that has helped Warren Buffett succeed in investing is to have a huge amount of cash in his portfolio always to move fast on opportunities he likes. But if you can do that and make money on your savings while they are idle, why not take the opportunity? With savings accounts finally starting to pay a decent return, it’s time to make sure that you are reaping the benefits as well.
Stay safe, stay invested, and I’ll see you next time – Graham Stephan.
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