Getting a decent interest rate on your money these days is not an easy task. In fact, if you want your money to be liquid, it’s basically not possible, without some element of risk. So, what do you do?
Simply put, the best that you can. The rule of thumb for cash is to have 3 to 6 months worth of expenses on hand at any given time. So, if your cost of living is $5,000 a month, you are supposed to have $15-30,000 in the bank in cash. Admittedly, not many of us keep that amount of cash on hand but for how ever much cash you do have you might as well get the most interest possible.
In my experience, the bank that you do most of your daily transactions does not have the best rate. The BIG banks seem to have incredibly low rates of interest on their cash accounts. I’ve seen rates as low as between 0% and 0.2% at banks such as Bank of America, Chase, Wells Fargo, U.S. Bank and Union.
Instead, I choose to keep my cash out of the hands of the major banks and place it with an on-line institution. Now, don’t get me wrong. These are not necessarily small companies, it’s just that they typically don’t have brick and mortar local offices for you to visit. You will have full access to your money through transfers directly to your regular bank and the money is typically insured to the limits placed on all accounts by the FDIC. However, the rate of interest can be 7 or 8 times that of your regular bank.
Don’t get too excited. It’s still only 0.75% to 0.90% but if you’re only getting 0.1% at your regular bank it makes a fairly significant difference. For example, if you were fortunate enough to have $100,000 in the bank, you would receive $1000 in annual interest versus $100. I don’t know about you but I’m quite happy to have an additional $900 in my pocket (less taxes of course). Even if your balance if $10,000, you still get $90 instead of $9. Who am I to throw away good money!
So, take a look at Capital One, Ally, American Express and Mutual of Omaha. They all have banks that boast these HIGH rates (NOT). Better than a sharp stick in the eye.