The Fed’s keeping interest rate low with QE3 will change a lot of things. I thought of one more habit change after I finished the previous post 3 Good Money Habits Going Obsolete In a Low Interest Rate World.
Old Habit: Earn Interest From Money On Deposit
New Habit: Get Paid For the Banking Relationship
In the old days, you put money into an account. You earn interest on the money. Simple.
These days, you don’t earn much interest on the money on deposit. It’s quite laughable when a rate under 1% is considered “high yield.” Instead, banks pay you for having an account with them. It’s only loosely tied to the amount of money you have with them. They are paying for the relationship.
For example, Citibank was giving reward points worth $100 in Amazon gift card for opening a basic checking account with them. [Update: the offer for bonus reward points has since expired.] The basic checking account is free of monthly fee if you keep $1,500 in it or if you do 1 direct deposit and 1 bill payment every month. To earn the $100 in Amazon gift card, you need to
- enroll in their ThankYou points rewards program;
- have 1 direct deposit into the account and 1 bill payment from the account for 2 months
The direct deposit can be satisfied by a scheduled monthly recurring ACH transfer from your current bank account into the new Citibank account. The bill payment can be satisfied by a scheduled monthly recurring $10 payment to a credit card. Both require only a one-time setup.
You don’t have to switch over your primary checking; you can just use it like a savings account.
Your $1,500 if left in a “high yield” savings account that pays 1% will only earn $15 in a year. Even without a signup bonus, if you keep the monthly scheduled deposit and the scheduled bill payment, the Citibank checking account will give you ThankYou points worth $4 per month. On an ongoing basis, you will earn $50 a year from having a basic checking account with Citibank versus just $15 interest from your money in a “high yield” savings account.
Which is a better deal: $50 a year versus $15 a year elsewhere? After a one-time setup, everything is automated. You just sit back and collect the rewards. Although it may pain you to see your money not earning interest in a basic checking account, earning interest is not the game anymore. Reward points are worth several times more.
Who says big banks are bad? You just have to know how to use the account.
Although $50 a year doesn’t seem like much, in a low interest rate world, every bit counts.
Chase also offered a $200 bonus for opening a checking account (online link took down by Chase; ask in a branch if you still want it). Like Citibank, a $1,500 balance will keep it free of monthly fees. Unlike Citibank, Chase doesn’t pay on an ongoing basis after the initial bonus. You just keep $1,500 there for six months and treat it like a 25% APY 6-month CD. Nothing stops you from having an account with both Citibank and Chase. I signed up for both.
If it were up to me, I would much prefer to earn interest the old fashioned way. But the Fed isn’t giving me that choice. It wants me to play games. Although I got the message a little late, I finally figured it out. Fine. I will play along.
Say No To Management Fees
If an advisor is charging you a percentage of your assets, you are paying 5-10x too much. Learn how to find an independent advisor, pay for advice, and only the advice: Find Advice-Only.