Rob Peter to Pay Paul the Right Way! - InvestingChannel

Rob Peter to Pay Paul the Right Way!

Proprietary Data Insights

Top Mega-Cap Bank Stock Searches This Month

#1Bank of America117,640
#2JPMorgan Chase83,938
#4Wells Fargo41,033
#5HSBC Holdings6,154

If you have cash you don’t want to spend, trade, or invest for retirement, it makes sense to maximize where and how you park it. We’ll cover the how part in somewhat nerdy detail in a minute, but first the where

There was a time when only online and otherwise obscure banks and credit unions offered interest rates that significantly beat the paltry rates from Bank of America (BAC), JPMorgan Chase (JPM), and the like. 

Those days are gone. 

And you don’t need a lot of money to get a solid rate. At the aforementioned big banks, you tend to get only a marginally higher rate if you maintain a big balance, typically $25,000, $100,000, or more. 

The Juice searched some of the best savings account deals, focusing on results with no fees and no minimum balance requirements.

One of our favorite offers comes from SoFi (SOFI). SoFi wants you to make it your main bank, so it stipulates you need to clear the relatively easy hurdle of signing up for direct deposit in order to earn 3.75% on savings as well as a $50 cash bonus for direct deposits between $1,000 and $4,999 and a $250 bonus for $5,000 or more. 

Beyond SoFi, the three next best interest rates come from huge names that aren’t known for their brick-and-mortar presence: 

  • Barclays (BCS): 3.40% with no minimum balance. No bonuses and no meaningful or unusual bells and whistles. 
  • Discover (DFS): 3.30% interest with no minimum balance. $15,000+ deposit earns a $150 bonus; $25,000+ deposit earns a $200 bonus. 
  • Marcus by Goldman Sachs (GS): 3.30% with no minimum balance. $100 bonus with a $10,000 deposit. 

So far, the big brick-and-mortar banks, for the most part, refuse to budge on interest rates. They offer many of the same other features and amenities the online-focused banks offer, but if they’re not willing to compete on interest rates, what’s the point?

If you have significant savings, search before you deposit. Savings rates and special deals change all the time. Some depend on where you live. 

Now that we’ve covered the where, we’ll get to our take on how to most effectively save.


Rob Peter to Pay Paul the Right Way!

Key Takeaways:

  • Effectively managing your savings isn’t a straightforward task. 
  • But it doesn’t have to be complicated. 
  • Keeping all your cash in one checking and one savings account isn’t the best idea. 

The Too Much Money in Your Checking Account Mistake 

It’s smart to keep a checking account with a cash cushion. That is, more money than you need to cover monthly bills and discretionary spending. This cushion can completely cover or at least help cover unexpected expenses, splurges, or any other additional spending. 

But lots of people have way too much money in their checking accounts. Other than the fact that this money could be working for you elsewhere (see above), this is poor organization that can lead to problems, such as not really knowing how much you’re spending each month. 

An inflated checking account might make it easier for you to spend more than you should (as in, live beyond your means). Because when you face a spending decision (like taking on a car payment), a super high balance can give you beer muscles, giving you (false) confidence to spend more. 

Focus Your Savings

A first step toward getting organized and taking control of your personal finances: Take the money that doesn’t need to be in your checking account and put it in savings. 

Then, think about the things you really want to spend your money on. So you’ll have a pretty good idea of where your money will go. 

For example, we asked a Juice staffer where he wanted to focus his spending. He said: 

  • Fine dining
  • Travel
  • Comic books 

What an eclectic dude! 

Create Pots of Money

We told our staffer to open five savings accounts – that’s right and automate regular deposits from his checking account into these new ones:

  • An emergency fund
  • A rainy-day fund
  • A fine-dining fund
  • A travel fund
  • A comic book fund

Let’s break these down… 

The staffer is already saving for retirement and is mostly debt-free. 

He needs money in case something really bad happens, particularly if he loses income. Thus, an emergency fund with three months’ worth of expenses. 

Then, for unexpected expenses beyond what his checking account cushion can cover, a rainy-day fund with a few hundred to a thousand bucks in it. To take care of annoying things such as flat tires or smashed windows. 

A fine-dining fund, which is the pot of money that’ll pay for all his expensive meals. Say, tabs of $100 or more. 

A travel fund to cover, well, all the primary elements of traveling, such as flights and lodging. 

And a comic book fund to ensure he has cash on hand specifically for this nerdy guilty pleasure. 

The Best Way to Take Control of Your Spending 

To fill whatever pots of money you come up with, look at your cash flow and historical spending. Set up weekly transfers to each account to get them there as soon as possible. Once the money’s there, all the spending for each earmarked purpose comes from only the specified pot of money or your checking account cash cushion. 

There’s no better way to take control over your spending. 

Plus, without involving credit cards, you’re robbing Peter to pay Paul the right way. Instead of juggling available credit and balance transfers, your pots of money are versatile. Like if you’re not traveling much, you can redirect surplus from your travel fund elsewhere. Maybe to fill out your emergency fund or to handle a period of time when you’re dining out more. 

The Bottom Line: This is just one approach to organizing your savings. 

Think of it like a closet. You don’t just throw everything in there at once without a plan. This would be not only messy, but also hard to find stuff. Rather, you section off your closet. Linens here, cleaning supplies there, holiday decorations over there, and the comic book collection in waterproof boxes a few inches off the floor. 

Take our ideas and run with them. Adapt them to your own life and preferences. Above all else, find ways to organize your savings. It’ll make you both a better saver (pots of money add up fast!) and a smarter spender.

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