If you’ve been listening to the How to Money podcast for a while, you know that Matt and I get pretty excited about investment properties. I just recently took out a fairly substantial home equity line of credit to further pursue my goal of purchasing solid properties that provide good returns and will ultimately help me achieve financial independence over the next few years.
Having a large chunk of cash in the bank affected me in a couple of ways. It’s now much more exciting to peruse the FMLS knowing that I’m poised to make solid offers on properties that fit my criteria. It also made me even more concerned about maximizing the interest rate that I earn until I actually find that perfect rental property (or two).
Different financial institutions specialize in different products. For instance, if you need a mortgage loan – consider your local credit union. Do you want to start investing? May I recommend Vanguard or Fidelity? Neither of those options is typically great for earning copious returns on your savings, though – which is what I was in need of after securing my HELOC. As most of you smart savers know, online banks are typically the best for high-interest rate savings accounts. So that’s exactly where I turned.
Make higher returns on your money simply by switching
I specifically decided to open an account with CIT Bank. They are currently offering a 0.45% interest rate on their savings account as of writing this article. I’ll be honest, that doesn’t sound like much. And compared to what interest rates were a year or two ago it’s pretty paltry. BUT, compared to the interest rates that many of the other banks out there are paying, it’s excellent! That’s because the largest banks in the country pay 0.01% on money that you save with them – in addition to the copious fees they like to tack on.
So, since there’s such a large gap in the interest rate being offered by online banks like CIT and the giant banks that advertise on television, it makes sense to jump ship and open a new account. And for me, that extra cash that I’ve got on hand means I would have lost hundreds of dollars a year in earnings had I not made the switch. Those two factors led me on the search that finally ended in opening up this CIT savings account.
Great customer service and no stupid fees
I’m not sure what I hate more – bad customer service or obscene bank fees. Well, the good thing is that I didn’t have to deal with either anymore. I called up CIT Bank in order to see how quickly I could speak with an actual human and was happy that it didn’t take long at all. The account I signed up for also has no monthly maintenance fees which was foundational to my decision.
Most of the big banks make you jump through multiple hoops in order to eliminate the stupid fees that they charge. You might be forced to have a minimum balance of $1500 or a direct deposit of your paycheck in order to avoid a $12-15 a month account maintenance fee. So not only are you getting paid far less in interest, you’re likely paying that bank money every month just for the privilege of parking your money there. Not cool.
What is CIT’s monthly account maintenance fee? It doesn’t exist. An additional perk is zero fees on wire transfers if you have an account balance of $25k or more! As someone who is specifically opening this account up with the desire to wire funds for an investment property closing in the near future, that is a welcomed perk.
Your money is safe
It should go without saying, but only do your banking with an institution that is FDIC insured. This means that all of your deposits up to $250,000 are safe in the event of that institution’s failure. It isn’t very often that I see banks without FDIC protection, but if you are digging around the internet searching for the highest interest rate payout from an online bank, this is something to be cautious of.
You don’t have to ditch your other bank completely
Most people get nervous about opening up a new bank account. While the vast majority of my funds will be with CIT Bank for the foreseeable future, I won’t be closing my longstanding Capital One or Discover accounts. Since the account only takes three minutes to open and because the minimum to open it is only $100 you can ease your way into this new relationship.
Seriously, if you have avoided opening up an account with an institution that is paying higher interest rates because you think it’s a giant pain – think again.
The main reason to consider a new bank
If you are in the same boat that I am in and have lots of cash on hand right now, you should strongly consider opening up an account with an online bank that will generate you a much higher return than the bank you are currently with.
To put it in perspective, the annual interest you’ll earn on a balance of $25,000 with a bank like CIT will net you over $100 more than what you would earn with the likes of Wells Fargo, Bank of America, or Chase. And that’s in addition to the $100+ you’ll be saving from not paying those pesky fees to those banks too!
The bottom line
The best online banks can offer great customer service, no-fee account options, and solid interest rates that dwarf what’s being offered by the biggest banks in the country. And that’s exciting for anyone who cares about seeing their money stash grow. And specifically, if you have a large chunk of liquid cash for any reason (like an emergency fund), a high-interest savings account should be of particular importance to you.
Rates change constantly in the high-competition world of internet banking. Find one that pays consistently high rates and is easy to work with. There are lots of options out there. I beg you, just don’t let your pile of cash sit there gathering dust when you could actually be putting it to work for you every month!
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