By Emily Luong, student @ UCLA
58% of college students aren’t saving money each month, and 81% of college students don’t have emergency funds! Clearly, money in savings accounts is something a lot of us students unfortunately don’t have.
So, why should you have a savings account with money in it?
- Emergencies happen, and relying on credit or friends and family in the case of one is not ideal.
- You could make money via interest by just leaving your money in the account!
- Putting money into a savings account makes you more disciplined in actually saving it, rather than leaving it in your checking account ready to be spent in the annual 25% Tarte Cosmetics sale.
How You're Missing Out on Easy Money
Many of us hold checking accounts with large banks such as Wells Fargo, Bank of America, Chase, Citibank, and more. That’s fine and all, but failing to do some research can cause us to lose out on easy money! How?
These banks rely on the convenience of opening a savings account under the same company that we already have a checking account with. They send us emails like “Add a savings account to get more benefits!” and give us an easy way to set up an account. Nagged by the thought that we should start saving money, we click the link, set up an account, transfer over some money, and feel good about ourselves. Adulting!
Well, no. We have just fallen into the bank’s trap. By failing to research other savings account options and instead opting to go the easy way, we lost out on potential extra money in the form of interest.
Bank of America offers a 0.03% APY (annual percentage yield). Other megabanks like Chase, Citibank, and Wells Fargo offer similar or less (even down to 0.01% APY). This means that if you maintain a $1,000 balance in your savings account with 0.03% APY compounded monthly over a year, you’ll earn a whopping 30 CENTS in interest just by letting the money sit there untouched. 🙄
“But 0.03% sounds good for such little effort; all I have to do is leave my money in the account and let it sit there!” you say? Well, what if you could get more than that for the same amount of work? What if you could get 1.00% APY? 1.35%? Even 1.60%?
Good news. High-yield savings accounts with APYs up to 1.60% are readily available and FDIC insured! That means that if the bank fails for any reason and you lose your money, the Federal Deposit Insurance Corporation (FDIC) will insure up to $250,000 of your funds. Most of these high-yield savings accounts are provided by online banks. Because they don’t have brick-and-mortar locations, they can offer high APYs that banks with physical locations can’t due to crazy high upkeep and operational costs. That means you can earn up to $16 in interest in a year if you maintain a $1,000 balance in your savings account. That’s 160x the interest you get from a megabank!
Personally, I’ve had a great banking experience with Ally. It offers:
- 1.45% APY
- No minimum balance required (super important for an unemployed college student!). For reference, Bank of America requires a minimum daily balance of $500…
- No monthly maintenance fees, period. For reference, Bank of America charges $8 a month unless you meet certain conditions.
- No minimum deposit! You can open an account with $0.
- A free checking account for convenience!
- Exemplary customer service with 24/7 help line.
We recommend you to research other high-yield savings accounts and compare them through awesome tools like this one from Nerdwallet! Because at the end of the day, you want to find the best savings account for you.