A smarter savings account

A lot of folks use a checking account to handle the day-to-day cash flow and use a savings account to accumulate wealth and generate interest.  Unfortunately savings rates these days are trivial...oftentimes lower than 1%.  The alternative might be to put the money in a mutual fund, money market account, or a certificate of deposit...something a little less accessible.  Most folks don't like this option as their savings are also their 'rainy day' fund.  If you're one of those folks, here's how to keep your money close while getting a better interest rate:

Ally Bank's high-yield CDs have terms from 3-months to 5-years.  What catches my attention is the 5-yr 2.39% APY account (rates in the post as of 1/15/2011).  Though 2.39% may not seem great for such a long term, it is steady, reliable, and it's better than the 0.3% you're making now...7 times better, in fact!  I know, nobody wants to tie their money up for such a long time period...well here's the deal:

Ally's CD early termination policy is 60 days of interest...that's it.  If you're confident you can keep your money in there for longer than two months, it's probably worth considering.  If you can keep it in there for 12-months, you're netting a 2% return (much nicer than the 1.29%; 1-yr CD).  For a lot of folks...the 'rainy day' never comes, and money sits in these low-yielding savings accounts for years.  That could be hundreds or thousands of dollars lost over the years!  Consider a high-yield CD with a simple, low-cost early termination penalty.

Ally's just one option. Visit www.bankrate.com to compare current market rates. Do your homework, and don't be afraid to call and have a customer service rep explain the details of your new account.

Moving forward...keep an eye on your accounts and current market rates.  If 12 months from now you can get a 4% CD, it might be worth moving your money around again. You are in charge of your money.  Don't let rain day fears keep you from earning interest on money...get a smarter savings account today!

Reader Story - Overdraft Protection

I got a e-mail this week from one of our readers, Will.  He was devastated having recently discovered $400 in over-draft fees on his checking account.  An all too common story...he thought he had an automated transfer set up to avoid this type of situation.  Instead his account hit zero, and soon even a cup of coffee was costing him $20!

My advise was fourfold:

1. Get money in that account NOW! Maybe a given, but the last thing he needs at this point is more fees.  You don't want the bank to have any reason to hold this accident against you.  Give them there money back and double check all of the automated transfer settings to make sure this doesn't happen again.
2. Go to your local branch and discuss the situation with a customer relations manager. If your overdraft was a simple & uncommon mistake, usually the personal touch will get you some or all of your money back.  It's more important to the banks that they keep you happy so that you stay a long-term customer, rather than hoarding these type of fees.  If it was clearly an accident an isn't an everyday occurrence, be persistent and insist on your money back.  I'd be well-prepared to put my money elsewhere if they didn't offer me anything back on that $400.
3. Start shopping around for a new bank account.  Many banks offer free overdraft protection.  Find a bank that has a plan that is better suited to you.
4. Set up alerts!  If your bank won't notify you that you're about to overdraft, then sign up for a free service like www.mint.com.  Mint will send e-mail or cell phone alerts letting you know before something becomes a problem.

Reluctantly, Will went into his bank, and they greeted him kindly.  Not only did they refund him $200 and changed his fee structure to $0.99/overdraft, they also ran a free credit check and gave him some long-term strategies for improving his credit. Let your bank work for you, and develop a relationship at your local branch.  

What's your over-draft horror story?