How to Earn 4.25% Interest Income on Your Cash While You Sleep!
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When the Fed (US Federal Reserve) started raising interest rates in March 2022, they hiked interest rates a total of 11 times between March 2022 and July 2023.
Good for savers; bad for borrowers!
As a result, the interest rates on US Treasury Bills, savings accounts and money market accounts became attractive to savers and investors – especially compared with market interest rates during the years following the Great Financial Crisis (“GFC”).
What’s more, online banks paved the way for attractive interest rates on savings accounts and checking accounts – benefitting savers.
One of the good things about online banks is that they have a relatively low cost structure.
Based on my research, I found that online banks pay interest rates that are approximately one percent (1%) or 100 basis points More than the interest rates brick and mortar banks pay.
One percent (1%) or 100 basis points is a Big Difference!
The difference in interest rates arises in large part from the difference in the banks’ overhead and cost structure. Brick and mortar bank branches have to pay rent, property taxes, employees, and more. Online banks need infrastructure too but they tend to be much more scalable. To move money, customers click the mouse instead of going to the bank branch and working with a bank teller.
To capture interest income, a few years ago, I opened a day-to-day American Express® High Yield Savings with American Express National Bank, a division of the American Express Corporation, often referred to as Amex®.
As this blog post goes live, American Express® High Yield Savings is paying 4.25% interest per annum (year) on your savings account balances. Currently, this is a competitive interest rate.
Currently, they do not charge any fees and don’t require any account minimum balance, which is nice.
I opened my American Express® High Yield Savings account with just $500 actually; although I have a lot more money on deposit today.
Amex® pays interest monthly. And you can withdraw your money anytime!
When I checked online:
BMO Alto was paying 5.10% (minimum balance = $0) (BMO means Bank of Montreal, which is an established 200-year old Canadian bank); and,
Marcus by Goldman Sachs was paying 4.40% (minimum balance = $0).
To find more banks that offer high yield savings accounts, Google ‘high yield savings’, ‘high-yield savings’ and ‘high yield savings accounts’ and visit Bankrate.com.
Here’s how you can earn interest income on your savings account balances 24/7 while you sleep:
1. Select a bank that you are comfortable with, is financially sound and offers the services and features you’re looking for at a reasonable cost.
I am comfortable with American Express® High Yield Savings.
BUT be sure to conduct your own due diligence!!!
NO guarantees from Budget and Grow Rich®.
BMO Alto, at least when I checked BankRate.com, was paying 5.10% per annum. That’s a nice difference over American Express® High Yield Savings’ 4.25%.
But I’m comfortable with Amex® and have two American Express® credit cards (which we’ll discuss in another blog post). And I can access all my accounts with American Express® inside the American Express® web portal, which saves me time and effort.
For better and worse, probably like many people I can be a sticky customer. . . I don’t like to move my money around and open and close accounts – it’s a hassle and time-consuming. In addition, maintaining multiple bank accounts complicates preparing my 1040 tax return.
2. Make sure you select a bank that IS FDIC insured.
FDIC means Federal Deposit Insurance Corporation (FDIC), a U.S. Government agency, which is designed to cover your money in the event of a bank failure.
FDIC insurance generally covers account balances up to $250,000.
If you are looking at savings accounts offered by credit unions, make sure that your account would be insured by the National Credit Union Administration (NCUA).
Like with many things, there are some rules. Be sure to figure out the rules and how they apply to your particular financial circumstances.
In March 2023, we saw a number of bank failures including Signature Bank and First Republic Bank. I understand that all the depositors that were eligible for FDIC insurance did get 100% of their money back.
BUT personally, I would NOT want to take the risk of losing my savings. What’s more, I certainly Don’t need the stress and anxiety!
Note though: in contrast to a savings account that houses our emergency funds or money we need in the short term to pay bills, etc., investing in for example the stock market is different, where your goal is to grow your wealth and follows the concept of risk-reward.
3. Needless to Say, Open a savings account with the bank you select.
You might be laughing that I said, “Open a savings account.” But truth be told, to earn interest income, you have to actually open a savings account and deposit your money! AND believe me, many people and I have done this myself, just don’t get to taking action. We dawdle; something comes up; the day was hectic; I’m tired.
If you want to make money, you have to take action and develop a plan that works for you and implement the plan. Period!
BUT be sure to conduct your own due diligence and consult your own professional financial advisors. Please note that Budget and Grow Rich® cannot give specific personal financial advice.
4. Make sure you can access your money / withdraw money – easily.
With American Express® High Yield Savings, you can withdraw your money by transferring money into your checking account with just a few clicks of your mouse. With all the other banks I’m familiar with, you can transfer money in the same way too.
My primary checking account is with Wells Fargo so I connected my American Express® High Yield Savings Account to my Wells Fargo checking account.
Transferring money back and forth is easy, even for me.
But I do find that it takes a few days – often two or three days – for the funds to clear before I can use them. If you want money (“good funds”) to pay bills and cover checks, you have to initiate the money transfer out of American Express® High Yield Savings at least a few days before you need the money. In my experience, the time lag is standard from bank to bank.
If you set up this system, make a mental note of the number of days it takes for your money to become available. In my experience, the time lag is two or three days. Review your personal budget and when your bills come due. Plan accordingly.
Or, leave some extra money in your checking account – a cushion or reserve if you will. I leave an extra $1,500 in my Wells Fargo checking account to cover checks and automatic payments. This helps me avoid bouncing checks; late fees; penalties; and all that jazz.
When I have extra cash in my checking account and don’t want to deposit the money into my wealth-building accounts for example, I transfer the money from my Wells Fargo checking account to my American Express® High Yield Savings Account to earn interest income. Then, when I want to use the money, I transfer money back to Wells Fargo. This takes a little bit of work, but at 4.25% annual interest rate, for me it’s worth it!
As I mentioned, when I want to get extra cash or have a big expenditure, I transfer money from my American Express® High Yield Savings Account to my Wells Fargo checking account. Then I write a check or withdraw cash from a Wells Fargo ATM.
5. Regardless of how you manage your money, be sure to create a personal budget.
Make sure you spend less than you earn so you don’t run out of money and bounce checks and can always pay your bills.
6. Be sure to monitor the interest rates over time.
Banks and other financial institutions often change the interest rates they pay you when you least expect it.
Banks, brokerage houses, registered investment advisors (RIAs) and other financial institutions set their interest rates based on the financial institution’s demand for money, customer supply of money and market interest rates.
I have seen banks lure depositors in with an attractive interest rate – a relatively high interest rate. This attractive, short-term rate is often called a ‘teaser rate’. Then a few months later, they reduce the rate. . . Many savers miss this. Keep your eye on the ball!
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If you want to earn Amex’s® currently 4.25% interest rate on your savings account, open an American Express® High Yield Savings Account, or check out BMO Alto, Marcus or another online bank you find in your travels.
Put more money in your pockets by opening a high yield savings account.
American Express® High Yield Savings has been working well for me so far.
And if you want to earn 1% interest income on your checking account balance, check out American Express® Rewards Checking.
Perhaps these accounts will work nicely for You.
Let us know how it goes!
And to create more Free Cash, Save More Money on Groceries Every Day – click here.
See you next week.
Arthur V.
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Disclaimer: OH and Please Remember, we are Not financial advisors, financial planners, attorneys or accountants and are Not providing any specific financial, tax or legal advice here. Be sure to conduct your own due diligence and consult your own professional advisors to get sound professional advice that’s specific to your financial and personal circumstances, risk tolerance, time horizon and investment goals and objectives among other key factors!
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