Consumers are in an uproar this week over the Digit’s new monthly fee. The once-free automated savings app announced Tuesday in a Digit blog post that users will be charged $2.99 a month after a “trial period” of 100 days.
The company said in the announcement that it will increase the “Savings Bonus” — that’s the rate Digit pays to those who store their savings with the app — from 0.2% to 1%, to “reward” users.
Digit CEO Ethan Bloch told Forbes the decision was based on the fact that they needed to monetize the company but didn’t want to sell customer data and advertising that would compromise its brand integrity.
“We went through this huge exercise and a lot of it was in philosophical debates,” Bloch told Forbes.
The app has been free since its launch in 2015. Many customers ranted on social media about the new subscription fee and Digit’s website outage. Some said they planned to abandon the app.
Digit is an awesome service that I’m happy to fund with forfeited interest, but it’s not worth 2.99/mo @hellodigit
Here’s what you need to know about Digit’s new $2.99 fee and possible alternatives.
Is the app worth the fee?
Considering that no new or enhanced features have been added to the app aside from the increased Savings Bonus, there appears to be no clear benefit from the monthly fee. However, based on the amount of funds you may save due to using this app, some consumers may feel as though the fee is worth the return.
If I decide to leave, how can I cancel the account without getting charged?
For those who signed up for Digit after April 11 — when the changes went into effect — you have a 100-day trial period from your start date before being charged.
If you want to cancel your Digit account without being charged, go to Dashboard > Help > Close My Account within 100 days, as of April 11, 2017.
What are some free alternatives for automated savings?
Other companies offer free automated savings tools, programs, and services to help you reach your savings goals. Here are five options:
Chime offers automatic savings per purchase, plus a weekly bonus reward. This service also offers a “spending” account, a Visa Debit Card and boasts no minimum, overdraft or ATM withdrawal fees.
Qapital allows you to set goals based on “rules” in order to increase your savings potential. For example, the Spend Less Rule encourages you to set a lower budget than what you usually spend in a category, then saves the rest (e.g., if you spend $25 on fast food instead of $35, the app will save the extra $10). The company makes money by accruing interest from your savings and promises there are no fees.
Simple boasts a Safe-to-Spend feature along with its goal-setting and automatic savings feature.
Dobot is similar in its plan for you to establish goals and set aside small amounts toward those goals.
For Bank of America users who prefer the traditional bank atmosphere, you can enroll in the Keep the Change Program. The bank rounds your purchases to the nearest dollar amount and saves the difference. You must have a Bank of America checking account, savings account, and debit card
Chances are you haven’t heard of Live Oak Bank. After all, this lender, based mostly on the web, has only been around since 2008, and it mostly focuses on giving out small business loans to businesses in specific industries, such as veterinary practices or craft breweries.
That’s no reason to pass it up for your personal banking needs, however. In fact, this little gem of a bank has one of the best-kept secrets in the personal banking world: it has one of the highest savings account interest rates you’ll find from an online bank. (More on that below.) And, most of its other personal deposit accounts offer relatively high rates as well.
Let’s take a more in-depth look at its deposit accounts to see if they’re right for you.
This bank’s minimum deposit requirements also seem to be right on par with other bank’s minimum deposit requirements. The current best CDs out there have minimum deposit requirements both above and below Live Oak Bank’s $2,500 benchmark.
Rates current as of Dec. 5, 2017.
What else do I need to know about Live Oak Bank’s CDs?
Only U.S. citizens and permanent residents are eligible to open these accounts. It’s a relatively straightforward process to open a CD: Simply complete the forms online, provide any needed documentation (such as your current bank account details), and wait for an account approval. Once your account is open, you can transfer over your deposit, where it will be held for five days before officially launching your CD.
If you need to take out your deposit early, bad news: As with many CDs, you’ll face an early-withdrawal penalty at Live Oak Bank. If your original CD term was for six months, one year or 18 months, you’ll be charged 90 days’ worth of interest. If your original CD term was for longer than that, you’ll be charged a higher rate of 180 days’ worth of interest.
If you are able to resist the urge to withdraw your money early, congratulations! Your CD will automatically renew into a second CD with the same term length. However, don’t panic if that’s not what you want: You have up to 10 days after the CD has matured to withdraw your money penalty-free and park it in your own bank account (whether it’s with Live Oak Bank or not).
Up to $5 million
(but only up to $250,000 is FDIC-insured)
Rates current as of Dec. 5, 2017.
How do Live Oak Bank’s savings accounts compare?
When it comes to the best savings accounts with high interest rates, Live Oak Bank is right up there. This means that Live Oak Bank is lowering the bar and allowing anyone to take advantage of these high interest rates, no matter how much is in his or her pocket right now.
What else do I need to know about Live Oak Bank’s savings account?
Live Oak Bank wants you to use your savings account, and use it often, which is one reason why it has no monthly maintenance fee. If there is no activity on your account for 24 months and your balance is less than $10.01, Live Oak Bank will take the remainder of your balance as a Dormant Account Fee and close your account.
Getting money into a Live Oak Bank savings account from an external bank account can take a little bit of time depending on how you do it. If you request the money through Live Oak Bank’s online portal, the funds won’t be available for up to five or six business days. But if you opt instead to send the money to Live Oak Bank from your current bank, the money will be available as soon as it’s received. Your Live Oak Bank savings account will start earning interest as soon as the money posts to your account.
You can easily withdraw your money at any time via ACH transfer. Simply log into your Live Oak Bank savings account and electronically transfer it to whichever bank account you wish. It’ll be available in two to three business days.
You are limited to making just six transactions (deposits or withdrawals) per month with this savings account. That’s not a Live Oak Bank thing; that’s a federal regulation imposed upon savings accounts in the U.S. If you absolutely can’t wait until next month to make another deposit or withdrawal past your allotted six per month, you’ll be charged a $10 transaction fee for each additional action.
Overall review of Live Oak Bank
It’s easy to overlook Live Oak Bank for other larger, more established consumer banks like Ally or Discover Bank. But Live Oak has some of the best CD rates around, and the best savings account available on the market today.
Lest you be scared away by its smaller name, consider this: This tiny-but-growing bank is getting rave reviews from customers and employees alike. It carries an “A” health rating, and has a top-notch online banking portal. About the only thing missing is a checking account to let you seamlessly do all of your daily banking with this great company.
Chase Bank is a consumer and commercial bank operated by JPMorgan Chase & Co., an international business firm dating back to 1799 that currently has $2.6 trillion in assets and operations worldwide. The bank, insured by the Federal Deposit Insurance Corporation (FDIC), has 5,100 branches and 16,000 ATMs across the United States. Its products include credit cards; checking, savings and CD accounts; and auto and home equity loans.
But Chase’s CDs are the subject of this article; they can be opened at a branch or completely online at term lengths ranging from one to 120 months.
How Chase CD rates compare with those of other banks
We compared Chase’s CD offerings with entries on our current list of the Best CD Rates for December 2017. On the positive side, you’ll need less money to qualify for a Chase CD than you might at other banks. Chase allows customers to open their CDs with a minimum deposit of $1,000, which is slightly lower than qualifying amounts at some other institutions. Chase CDs are also open to applicants who do not bank with Chase, in contrast with the practices of some banks and credit unions that require member checking or savings accounts.
However, Chase CD rates are far from the most competitive rates out there. You can easily get find better APY rates at other institutions, particularly for one-year CDs. If you decide to go with Chase, look into so-called “relationship rates” with a higher APY. Relationship rates are offered to customers who link their CDs to a Chase personal checking account.
On a 12-month CD for under $10,000, for example, you’ll currently draw twice the percentage rate offered on the standard CD.
As mentioned, a minimum of $1,000 is required to open a Chase CD account, and interest is compounded daily. Depending on the term, your earned interest may be paid monthly, quarterly, semi-annually, annually — and at maturity.
Here’s an overview of the rates Chase currently offers on its CD products. All rates were reviewed at Depositaccounts.com, another LendingTree-owned company, and are current as of Dec. 5, 2017.
Chase CD relationship APY rates are extended to customers who have a linked Chase checking account. You can apply online and if you use a transfer from your account to open the CD, the account can be opened the same day. The minimum deposit is, again, $1,000.
Here’s a sample comparison between the APY on standard and relationship CDs on new accounts. To calculate on earnings at maturity, we assumed an account balance of $5,000.
Chase standard CD APY
Earnings at maturity
Chase relationship CD
Earnings at maturity
12 months at 0.01%
12 months at 0.02%
24 months at 0.05%
24 months at 0.15%
48 months at 0.10%
48 months at 0.50%
120 months at 0.70%
120 months at 1.15%
Important information about Chase CDs
There are no monthly service fees, however there are $15 fees for inbound domestic and international wire transfers (waived if from another Chase account) and outbound domestic wire transfer fees. Accounts can be opened online. Deposits of more than $100,000 must be opened at a Chase branch office.
Non-Chase customer access
You do not need to have a Chase checking or savings account to open a standard Chase CD account. You’ll need to provide a Social Security number, driver’s license and contact information. Deposits must be made from a checking or savings account through your existing bank.
Maturity date and grace period
Law requires banks to alert consumers before the maturation date on CDs. Chase considers the maturity date as the last day of the term. It offers a 10-day grace period on all CDs with terms 14 days or longer. During the grace period, you can withdraw the funds without penalty or roll over the account to another term.
Automatically renewable CDs versus single-maturity CDs
Account holders have the option of opening an automatically renewable or single-maturity CD account.
With an automatically renewable CD, the account renews on the maturity date for the same term as the original one, making the new maturity date the last day of the new term. The standard rate will apply unless the owner qualifies for a relationship CD.
The single-maturity CD does not automatically renew and earns no interest following the maturity date. You may want to see if Chase is offering any promotional rates during the 10-day grace period if you plan to invest in another Chase CD using a ladder strategy.
Earning interest on a Chase CD
Interest on Chase CDs begins to accrue on the first business day of deposit into your account and is calculated on a daily balance, 365 days a year. Paid or credited interest can be withdrawn during the term or at maturity without incurring penalties. For maturities of more than one year, interest will be paid at least annually, according to the bank. If the CD matures and automatically renews, the interest in the account is rolled over into the new principal.
Early-withdrawal penalties and fees
According to Chase, early-withdrawal penalties are deducted from your principal and do not exceed the total amount of earned interest. The penalty is 1 percent of the amount withdrawn if the term of the CD is less than 24 months. The early-withdrawal penalty is 2 percent for terms of 24 months or more.
Chase CD early-withdrawal penalties can be waived upon:
Death of a CD owner
Disability of a retirement CD owner
Retitling of a CD
A court ruling that the CD owner is incompetent
The bottom line:
Chase’s CD rates are likely best for customers who link the CD to their personal checking accounts because they can qualify for those juicier relationship rates. The rates improve for longer terms and larger deposit amounts. Chase’s online tools allow you to apply for relationship CDs and track your investments. The minimum amount to open a standard CD account ($1,000) is on par or slightly lower than those required by other institutions. Overall, the APY rates are not as good as you can get from some competing banks and credit unions.
If you’re working hard to stay disciplined and stash away a portion of your income, you’ll want to earn the highest interest rate possible on your money. Unfortunately, that’s difficult as bank savings accounts earn an average of 0.06% in interest annually, according to Dec. 4, 2017 data from the FDIC. The American Express® Personal Savings High Yield Savings account offers nearly 20 times that rate at 1.25% annual percentage yield (APY). What’s better, the high yield savings account does not require a minimum deposit or charge annual fees, so you don’t need anything but your personal information on hand to open the account.
What you need to know about the American Express savings account
Minimum Deposit Amount
Permitted Monthly Withdrawals
Deposits will be available within five business days.
Transfers from savings to a checking account
take one to three business days.
In an American Express® Personal Savings High Yield Savings account, your money earns 1.25% variable APY. It’s not the highest APY you can currently earn from an online savings account, but it’s well above average. The account charges no monthly fee and requires no minimum deposit, making it an affordable account to open. You must fund your account within 30 days of applying for the account, and the FDIC insures your deposits up to $250,000.
Overall, the account is a great option for anyone who wants the flexibility of earning a high interest rate on a sum of money you’ve stashed away (an emergency fund, perhaps?), minus the withdrawal restrictions of a certificate of deposit.
How the American Express savings account works
The savings account compounds daily at a variable 1.25% APY, and interest earned is credited to your account on your monthly cycle date. The rate is variable, so American Express can raise or lower the interest rate at any time without notice to you before or after the savings account is opened.
Account holders must fund the account within 30 days, which you can do by setting up a bank transfer or direct deposit to the savings account, as well as by sending a check.
You can make up to six withdrawals per month from the high yield savings account without penalty.
What we like about the American Express savings account
High interest rate The 1.25% variable APY is better than what you would earn putting your money in the accounts most brick-and-mortar banks offer. While there are higher rates to be had (we’ve compiled the best online savings accounts here), American Express has a good offer.
Automatic savings It’s easy to make saving automatic when you have an online savings account. With the American Express Personal Savings account, you can easily set up a recurring deposit to pull funds from an external savings or checking account. To make it even easier to resist touching your savings, you can even have a portion of your paycheck directly deposited to the account.
Discourages spending With your money in an online account like the American Express Personal Savings account, you can only get your cash after making a transfer to an external checking account to which you have debit card access. The inconvenience makes it that much more difficult to spend your savings.
What we don’t like about the American Express savings account
No ATM card Not having card access is great when you need to prevent yourself from spending your savings, but the hassle of setting up and making an ACH transfer from your online American Express savings account can be problematic in a pinch. (American Express says transfers will take one to three business days for funds to become available in your checking account.) If you’re worried about this, you can instead turn to an online bank like Synchrony Bank that makes it easier to access your savings by issuing an ATM card tied to your high yield savings account.
Variable interest rate The annual yield rate American Express is offering on this savings account is high at 1.25%, but the bank can change that rate at any time for any reason, as the rate is variable. If you’re looking for a more predictable rate of return, consider a certificate of deposit.
Limited withdrawals Because this is a high yield savings account, banks are limited by Federal Reserve Board Regulation D to a maximum of six withdrawals and/or transfers from your online savings account per statement cycle without penalty. With that in mind, before you decide how much you’ll put away each month, make sure it’s not more than you can afford to, so you aren’t repeatedly reaching into your savings.
American Express versus top online banks
Salem Five Direct
Live Oak Bank
Minimum Deposit Amount
Permitted Monthly Withdrawals
Deposits will be made available
within five business days
Deposits will be made available
one to five business days after
the deposit is made
Deposits will be made available either the same day or the next
business day, depending on
when the deposit was made
Deposits will be made available
within five business days
As indicated earlier, the American Express Personal Savings account offer is strong, but it’s not the best available. To see how it compares, we used DepositAccounts.com — another LendingTree company and a database of deposit products at more than 17,100 banks and credit unions — to look at national, online-only banks with a health rating of a B or better and the highest APY on savings accounts. If there was a tie, we chose the bank with the lower required deposit. Here are a few alternatives to the Amex personal savings account:
Salem Five Direct – eOne Savings, 1.50% APY, $100 deposit to open (no ATM access)
Savers can earn 1.50% on their money with an online savings account offered through Salem Five Direct. You’ll need a minimum $100 to open the account, and the bank doesn’t charge any fees to open or maintain the savings account.
Salem Five Direct does not offer accountholders an ATM card, but you can transfer money from the savings account electronically, similar to what you’d have to do to get cash out of an American Express savings account.
Live Oak Bank – Savings Account, 1.45% APY, $0 deposit to open (no ATM access)
With $0 to open the account, you can earn an annual yield of 1.45% on savings account balances through Live Oak Bank. While there are no monthly fees, an account could be charged with a dormant-account fee if an account is left with a balance less than $10.01 and has not been active for 24 months straight. (That means no withdrawals, deposits, contact with a customer success manager, nor customer log-ins to the online banking website.)
Savings accounts through Live Oak Bank will start accruing interest the day your initial deposit posts to your account, and interest is compounded daily. While an ATM card is not offered through this account, you can easily transfer or deposit funds through an ACH transaction or online through your Live Oak Bank account.
Popular Direct Plus Savings Account – 1.40% APY, $5,000 deposit to open (no ATM access)
Popular Direct also offers a 1.40% APY on its savings account. However, unlike Live Oak Bank, it requires a $5,000 minimum deposit amount to open the account and asks that accountholders maintain a balance of $500 in order to avoid the $4 monthly service charge.
Fortunately, Popular Direct offers a mobile app that allows accountholders to make deposits electronically, which allows them to post the deposit on the same day it was received.
Online banks have been having a moment not only because of the rise in mobile banking among consumers, but also because they can simply offer consumers more benefits because they don’t have to worry about as many overhead expenses as brick-and-mortar banks.
An August 2017 study by DepositAccounts.com shows the annual percentage yield internet banks offer on savings accounts is more than four times what brick-and-mortar banks or credit unions offer. The same analysis shows annual percentage yields on internet bank savings accounts have surged 29 percent since January 2016.
Simply put, the main benefit of putting your money in an online savings account is your money does more for you. To show this, DepositAccounts provided an example, based on the average APYs in those savings categories: If a saver were to put $100,000 in a savings account and leave it alone for 10 years, they would earn $8,338.79 at an online bank versus $1,747.04 in a brick-and-mortar bank and $1,895.28 in a credit union, assuming a fixed APY.
The bottom line
Overall, the American Express Personal Savings Account is a solid online savings account option, but you can do better. The interest rate Amex offers is high, but there are other online banks that offer a higher yield with a comparably small required minimum deposit, if any at all.
There’s a lot to consider when deciding where to put your money. Interest rates, account restrictions, fees, withdrawal penalties, minimum deposit requirements — all these factors can make it tricky to pick a deposit account that best suits your needs. Still, deposit accounts carry less risk than most other investment vehicles and play a role in a balanced financial portfolio, so it’s important to understand how they work and how to pick a good one.
A deposit account is an account at a bank or credit union that allows you to safely deposit and withdraw your money. The most common deposit accounts are savings and checking. Deposit accounts fall into two major categories: demand deposits and time deposits. With demand deposit accounts, you can withdraw money at any time without gaining permission from the bank or credit union, up to the full amount of your savings.
Among the demand deposit accounts, you’ll commonly find checking, savings, and money market accounts. Deposits in savings and money market accounts generally earn more interest than those in checking.
Time deposit accounts include certificates of deposit (CDs) and IRA CDs. These are interest-earning accounts that commonly offer better rates than regular savings accounts, but you must keep your money in the account for a set time or pay early-withdrawal penalties. The type of deposit account that works best for you depends on a number of factors, including how you want to access the money and how often.
Savings accounts don’t offer the convenience of using cash, a credit card, or checks for purchases, but you may be able to withdraw cash at ATMs. It’s important to note that the federal government clearly wants you to use this account for savings: Federal Reserve Board Regulation D limits you to six transactions per month on “certain transfers and withdrawals” from a savings or money market account. If you exceed your transaction limit, the bank may charge you a fee, close your account or convert it to a checking account, so check with your bank about requirements and penalties.
Checking accounts may have a variety of fees, which can include monthly maintenance charges, although they may be waived if you maintain a minimum balance or set up a recurring direct deposit. You might be charged for money orders or cashier’s checks, and checking accounts may also limit the amount you can withdraw in a given day or per ATM visit. Writing checks or swiping your debit card for amounts you don’t have can result in costly penalties like overdraft fees, insufficient-funds fees, or returned-check fees.
It varies by account, but you may be able to access your funds with an ATM card or checks. Money market accounts are subject to Reg D, just like savings accounts, so you will want to check with your bank about any transaction limits and potential penalties. Minimum deposit requirements for money market accounts may be higher than such requirements for savings accounts, though that’s not always the case.
Penalty rates vary across the industry and by CD term length, but penalties generally amount to losing some or all of the interest you earned on your investment at the point you withdraw. The interest rates are fixed over the term of the CD, which can be a few weeks, months or several years. Caution: The CD may automatically renew upon the maturity of the original deposit, so check with your bank or credit union for details.
Deposits can be insured by participating institutions up to $250,000 via FDIC (for banks) or NCUA (credit unions). Larger principals and longer terms may fetch the more competitive rates, but please, be sure you can go without access to your money for the duration of the CD term, lest the penalties you incur chew up your earnings and defeat the purpose of putting money in a CD in the first place.
IRA CDs share most characteristics with regular CDs, though IRA CD deposits are subject to annual IRA contribution limits. IRA CDs may renew automatically like traditional CDs, so it’s important to keep track of your CD maturity dates so you can make educated investment decisions when the CD term ends. You may also decide to create a system of CD ladders inside your IRA as a way of moving money from matured, short-term CDs into more profitable IRA CDs with longer terms.
But again, beware of early-withdrawal penalties. Not only are there penalties for withdrawing from the CD before it matures, but if you remove the funds from your IRA entirely, there is an IRS tax penalty of 10 percent on any distribution you take before you reach 59½ years of age. The IRS may waive penalties for funds applied to a first-time home purchase.
How deposit account rates work
You’re not just putting money into a deposit account to keep the funds safe — you want to be rewarded for letting the bank hold your money. Banks and credit unions use your money from deposit accounts to extend loans to other customers. The longer you leave your money and earned interest in the bank, the greater the amount of interest the account will earn in the following period. This is called “compound interest.”
The interest that banks and credit unions pay on deposit accounts is compounded based on the total balance. Depending on the bank and the account, interest compounds on a quarterly, monthly, weekly or daily basis. The more often interest compounds, the faster your balance grows. When looking over prospective deposit accounts, compare the annual percentage yields (APY). The APY advertised by your bank or credit union tells you the amount of interest you’ll earn in one year — the APY factors in the interest rate on the account as well as how often it compounds, so comparing APYs is the best way to compare the earning potential of different accounts.
How to decide on the right deposit account
Chances are excellent that you already have a checking and savings account. So why would you want to open another one or change banks? Compared with the interest you pay out on borrowed money, the APY you’ll commonly find with traditional savings accounts won’t excite you. If you’re looking to make the most of your conservative investments or want to earn as much interest as possible while maintaining regular access to your savings, it may be time to consider a new deposit account.
When to open a high-yield savings account
You may want to look into moving your savings into a high-yield savings account if you can get a better rate than what you’re earning with your current account. When considering a new savings account, pay attention to the following features:
Annual percentage yield (APY)
Minimum deposit to open
Minimum balance requirement
Monthly maintenance fees
Monthly transfer and withdrawal limits
Excess transfer and withdrawal fees
FDIC or NCUA insurance
When to open a CD
CDs are a good option if you don’t need access to your money in the short term. But beware of severe penalties for early withdrawals, along with renewal and automatic renewal policies. Once your CD matures, your funds may be automatically reinvested in a new CD of the same term and at the current rate your bank offers on that term. That’s not good if it’s not the best rate available or you need your money soon.
Consider these things when looking at CDs:
Annual percentage yield (APY)
Minimum deposit to open
Term — in particular, how long can you go without having access to this cash?
Investment strategy — are you going to use this CD as part of a laddering strategy?
FDIC or NCUA insurance
When to open a money market account
Money market accounts have many of the same benefits (and restrictions) as high-yield savings accounts. Generally, money market accounts require higher minimum deposits to open than savings accounts, and in exchange for that higher deposit, you may be able to secure a higher APY. If you have a large sum you wish to keep as a liquid asset, a money market account may be your best option. Here are some things to look at when comparing these products:
Annual percentage yield (APY)
Minimum balance requirements
Monthly maintenance fees
Monthly transfer and withdrawal limits
Excess-transfer and withdrawal fees
FDIC or NCUA insurance
How to invest beyond deposit accounts
On their own, low-yield, low-risk deposit accounts may be too conservative in building a well-rounded portfolio. A conversation with an independent financial adviser can help you understand how best to get into the market with a diversified portfolio, given your specific goals and current finances.
If you’re holding too much in cash, you should first create a basic budget of monthly expenses. Experts recommend you keep three to six months’ worth of living expenses in a liquid account, like a savings or money market account. Once you’ve saved enough for your emergency fund, you can decide how to invest based on your risk tolerance.
Should you put a specific percentage into deposit accounts and into the stock market? It really depends on your specific needs and your comfort with risk, which is why it’s helpful to talk to a professional planner.
You may want to consider opening financial planning brokerage accounts that can balance and focus all of your investment assets, including cash, CDs, stocks, bonds,g and mutual funds. Whether you’re making your own plans, working with a financial adviser or using a robo-adviser, there are plenty of options for managing and researching investments.
As you may know if you’ve done a search for BB&T CD rates, their website is not a helpful place to turn for information. Beyond a basic overview of their CDs on their website stating that they have CDs with terms ranging from seven days to five years, they do not give details on their current rates. BB&T did not respond to email and phone inquiries from MagnifyMoney asking why the bank does not publish its CD rates online.
When we called their customer service number, a representative said BB&T’s CD rates change on a daily basis and said the best way to learn about CD rates is to call or visit a local branch.
So that’s what we did.
We called BB&T branches on Dec. 1 and, on the same day, compared their CD rates to other banks and the national averages. After conducting this research, it’s not surprising BB&T makes their CD rates hard to find — they’re terrible.
BB&T CD rates and products
BB&T offers CD terms ranging from as short as seven days to as long as five years. They have eight CD options, each with different investment goals.
7-day to 60-month
For short-term investments, BB&T offers CDs ranging from seven days to 60 months. These personal CDs offer a fixed rate of return along with the flexibility to focus on developing either a short- or long-term investment.
BB&T CD Term
Minimum Deposit Amount
Rates as of Dec. 1, 2017
Not only can you find better CD rates at other banks and credit unions for each of the terms BB&T offers, you can get those better rates with smaller minimum deposits. BB&T’s offerings are far from the best in every term length above — you can see some of the top options in our monthly roundup of the best CD rates.
With the seven-day to 60-month BB&T CDs, there are no penalty-free options for withdrawing your funds prior to the CD reaching maturity. The early withdrawal penalty is the lesser of $25 or 12 months of interest for longer-term CDs. So with smaller initial deposits, early withdrawal penalties will negate any interest you may have earned.
As the name of this CD implies, whether rates go up or down, you can’t lose. Well, actually, you can: The APY is so low, you’re almost certainly going to lose money to inflation.
At the 12-month mark of the CD’s term, you may make one withdrawal without paying any fees. So if the market rate is higher than what you’re currently getting, simply withdraw the money and reinvest at the higher rate.
If, however, the interest rate you’re receiving is better than what’s currently available, you also have the option of making a second deposit into the Can’t Lose CD, up to $10,000. This locks in the rate for the new investment amount for the remainder of the term. So whether rates go up or down, you’ll lock in the higher rate.
30-month "Can't Lose"
No penalty for one
withdrawal after 12 months
As of Dec. 1, 2017
Still, you can find many CDs with better APYs than BB&T’s Can’t Lose, whether you’re looking for a 12-month investment or longer.
Laddering is a way to stagger your CD investments so you’re able to take advantage of increasing rates. With the Stepped Rate option from BB&T, laddering is built into the CD product. The initial CD starts out at a lower rate and increases each year. For example:
As of Dec. 1, 2017
This product also allows you to make an additional deposit each year (up to $10,000). So if the interest rate you’re receiving is better than the market, you can invest more money into your existing CD to make a higher return. But if the current CD market is offering better rates than your existing CD, you can simply take advantage of that offer and still make a higher return.
In addition, you may make a withdrawal from what you initially deposited into your Stepped Rate CD after two years. So, again, if the market changes dramatically, you may withdraw your money with no penalty and reinvest in a better option.
Or you could create a CD ladder on your own, choosing CDs with better rates than BB&T’s — higher rates are certainly available.
The Add-on CD option from BB&T offers a 12-month CD at 0.10% and an opening deposit of $100. You’ll need a BB&T checking account and a $50/month automatic deposit from your checking account into the CD. To get a personal account, you’ll just need to set up direct deposit or maintain a $1,500 balance.
Greater of $25 or
6 months’ interest
As of Dec. 1, 2017
If you’re in the market for a new home, and you want to earn a little more interest on the money you’re saving, consider the Home Saver CD. Starting with as little as $100, you’ll be able to deposit money earmarked for your new home every month and earn 0.40% APY. With this CD, as long as you’re withdrawing the money for use toward the purchase of your new home, you won’t pay any penalties for the withdrawal. But you will need a BB&T checking account set up for a monthly deposit of $50 into your Home Saver CD.
36-month Home Saver
No penalty for
As of Dec. 1, 2017
Similar to the Home Saver CD, the College Saver CD is meant for parents or students saving for college. It offers the benefit of starting at a higher APY (0.40%) with the flexibility of withdrawing the money up to four times per year to pay for the cost of attending school. As with the Home Saver, you’ll need to have a BB&T checking account with an automatic monthly deposit of $50. The College Saver offers terms of 36, 48, and 60 months.
36-month College Saver
No penalty for
48-month College Saver
No penalty for
60-month College Saver
No penalty for
As of Dec. 1, 2017
This CD offers the ability to make additional deposits of at least $100 into your CD at any time and one monthly withdrawal without penalty. The CD has a six-month term with a variable interest rate tied to the U.S. Treasury Bill — if the rate goes up, you’ll make more money, but if the rate declines, you’ll make less. Right now, rates start at 0.05% and adjust quarterly. Throughout 2016, Treasury Bill rates increased almost every month and have continued to rise in 2017, reaching 1.035% in August. So this is a great option if you have the $5,000 minimum deposit amount and want a short-term investment with the option to add or remove funds from the CD.
CDARS stands for Certificate of Deposit Account Registry Service and protects your principal and interest by making sure your money is placed into multiple CDs across a network of banks to keep your CDs insured by the FDIC (maximum limit for each CD is $250,000).
Other things to know about BB&T CDs
Does BB&T allow customers to take advantage of rising rates once they’ve opened a CD?
BB&T has two CD options that allow you to take advantage of rising rates: the 30-month Can’t Lose CD and the 48-month Stepped Rate CD. Both allow you to make a withdrawal before the CD comes to maturity in case rates increase (terms apply). They also allow additional deposits in case rates drop and you want to invest more at the existing rate of your CD. However, the current rates on those products are very low, negating the value of their flexibility.
BB&T (Branch Banking and Trust Co.) is a North Carolina-based bank with locations in 16 states and the District of Columbia, including Alabama, Florida, Georgia, Indiana, Kentucky, Maryland, New Jersey, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington and West Virginia.
BB&T offers a mobile app for both iOS and Android. While their website is easy enough to use, finding specific information, particularly about rates, is impossible. Their customer service number isn’t much help in that regard either, with most questions answered with a suggestion to visit a branch location. As a result, if you don’t live in an area with a branch, we don’t recommend using BB&T’s CDs. To find the BB&T branch closest to you, use their branch locator.
Pros and cons of CDs
A certificate of deposit (CD) may offer a higher return than you’ll get with your savings accounts, without the risk of loss that accompanies other investment options with higher return rates. The drawbacks associated with CDs are the inability to access your funds during the term of the investment without suffering a penalty and the risk of interest rates increasing while your money is locked into a CD for a specified term.
The bottom line: Are BB&T CDs right for you?
BB&T does offer some flexible deals to its customers, but in general, better CD rates can be found at both banks and credit unions with comparable terms. You can find them on our list of the best CD rates, which we update every month.
The Aspiration Summit Account is a new checking account that, depending upon your personal situation, can offer exceptional value. Here are the best features:
You earn interest on your checking account balance. You will be paid 0.25% on balances up to $2,499.99 and 1.00% on the entirety of balances of $2,500 or more.
You can use any ATM in the world, for free. Aspiration will not charge you an ATM fee. Even better, the account offers unlimited reimbursement of ATM fees charged by other banks within the U.S. and even overseas.
The monthly fee can be $0. You decide how much you pay each month, and you can set that fee at $0. (We explain this rather bizarre pricing strategy below).
The 1% interest rate is one of the best checking account rates in the country. If you move both your checking account and savings account into a Aspiration Summit Account, you would be able to earn a high interest rate on your money while avoiding the risk of overdraft and enjoying the convenience of only having one account.
However, this account is far from perfect, or free for certain situations. In particular:
There is an overdraft fee of $25, which rivals the “gotcha” fees of the big banks.
Other fees are also fairly lower than big banks. Outgoing wire transfers cost $20.
Receiving an incoming wire transfer will cost you $10. And to stop a payment will cost you $25.
Aspiration is a fairly new financial services company that aims to be “the investment firm for the middle class.” In this video (that could pass for a parody if you didn’t realize they were serious), the company proclaims that it is possible to be a “capitalist with a conscience.” Lofty goals are behind the company and the products they have designed. The CEO (Andrei Cherny) was a former Clinton White House aide, and with Aspiration he is trying to take action and create a new type of financial services firm that lives up to his ideals.
All products offered by Aspiration (which includes two investment funds and a checking account) have the same pricing model. You decide how much to pay. Yes, the fee is set entirely by you, the customer. You can set it to $0 or you can set it to any amount below $10. You can change the fee whenever you want. They provide a service and you decide what it is worth.
Aspiration is making a big bet.
With traditional banking, people are nickel and dimed every month. Make an out of network ATM withdrawal, and you could end up spending $10 in fees. Put your money into a savings account, and earn only 0.01%. By banking at Aspiration, you could be much better off financially than banking with your traditional bank. And you can do your own calculation and decide how much of that savings you share with Aspiration. They are hoping that you will share enough for the business to continue.
Application Process for the Aspiration Summit Account
In order to open an account, you need to be invited.
We believe they have created the invitation process to make you feel like you’re joining an exclusive community. Hopefully the contrived exclusivity will be dropped in favor of an easy account opening process soon.
To apply for the account, you first have to “secure your spot.” You can do that on their website here. You simply have to enter your email and click on the Get Started button.
After you provide your email to “secure your spot,” you will receive this message:
Immediately after, I received this message:
At that point, I was able to create my account online and apply for the checking account. Because this is an online checking account, there will be extensive KYC (know-your-customer) and compliance questions. I was required to provide:
Answers to identity verification questions. These are questions generated by a credit bureau. So, you will be asked to provide your social security number, but they ensure that they won’t “run the kind of credit check that will ding your score”. You might also be asked to answer questions about your mortgage payments, car loans, and other credit bureau items to identify yourself.
A link to an existing bank account. This is used to provide the initial funds in the account. I put $10 into the account for a test drive. (By doing this, Aspiration also reduces its risk, because you will have gone through the compliance checks of your existing bank).
Once you finish the account opening process, it may take a few days for the account to be open and for you to receive your debit card in the mail. Although the brand is “Summit” (the account) and “Aspiration,” (the business) it is actually Radius bank that is the bank operating your account. Aspiration has partnered with Radius in a way that is similar to how Simple operated. (Simple, for those who remember, was not a bank. It created the front-end user interface, but partnered with an FDIC-regulated bank).
Aspiration Summit Account Mobile App
In 2016, Aspiration joined the rest of the banking industry with the launch of their mobile app. Their app allows you to view your Aspiration Summit Account balance and transaction history, remote deposit checks using your phone’s camera, schedule transfers between the Aspiration Summit Account and other bank accounts, pay bills, and track the impact of your spending habits. The mobile app also allows you to use fingerprint authentication to secure the data.
There are two features that stand out:
Their Payments feature
Their Aspiration Impact Measurement (AIM) feature
Payments is Aspiration’s bill pay feature. Not only does this feature allow you to pay your bills, but it also allows you to pay your friends. However, unlike other bill pay and money transfer features (like Zelle), Aspiration’s Payments feature sends payees a paper check with your name, address, and optional memo if you choose to include one. This feature is available at no charge to the account holder.
Since this feature is sending a paper check, you can expect the payee to receive the check within 5-7 business days from the send date. Fortunately, Aspiration doesn’t limit the number of payments that can be scheduled and they don’t limit the amount of money you can send.
Aspiration Impact Measurement (AIM)
AIM is a pretty unique feature as it allows you to see the impact you’re making on the planet and people based on your spending habits. This feature will provide you with a score that is determined by the types of businesses you frequent. The score is calculated by how the businesses treat their employees, customers, community, and environment. So, businesses are given a score and you’re given a score based on where you do your shopping.
Aspiration shares that they created AIM “so that we can all think about how our everyday spending can make the world a better place.” This may sound very “kumbaya”, but there’s no denying that they’ve created an innovative feature. If you’re not too keen on this feature, you are given the option to turn it off in the Mobile App’s settings.
What We Like
Unlimited, global ATM fee reimbursement: With this account, you can use any ATM in the world and it won’t cost you a dime. Not only won’t Aspiration charge you a fee, but you will be reimbursed any fee charged by the other bank whether they are located in the U.S. or in another country.
One of the best interest rates in the market: At a traditional bricks-and mortar bank, you would receive no interest on your checking account, and you would earn only 0.01% on your savings account. With this account, you earn 0.25% on the first $2,500 and 1% on everything above that amount. The best online checking account in the market is currently paying 1.50%, but only as an introductory rate.
You no longer need to have a separate savings account and checking account. With that, you no longer need to worry about overdrafts. At a traditional bank, you could end up paying $10 just to have money automatically transferred from your savings account to your checking account if you make a mistake. Because you can keep all of your money in one account, you will not need to worry about overdraft transfers.
Full FDIC insurance, up to $250,000 per account per individual.
What We Find Lacking
Bill pay functionality. While Aspiration does mention that they will be making updates and improvements to their Payments feature, they don’t seem to mention going away from the paper check method. While sending paper checks may be a good solution for a feature that once didn’t exist at Aspiration, it’s still not as efficient as most online bill pay features that other banks offer.
Who Could Benefit From the Aspiration Summit Account Now?
The perfect profile for a Summit customer today would be:
You travel a lot, and frequently need to use ATMs that are outside of your bank’s network
You have a lot of cash that you keep in your account and would like to earn interest on that money
You are about the impract you make on people and the environment.
This account is going to get better over time. It won’t come as a surprise if this account starts to become much more competitive.
Depending upon what feature is most important to you, there are excellent alternatives:
If you want the highest interest rate, you can earn up to 1.50% with an online savings account. You can find the best savings account here.
If you want to avoid ATM fees globally, but need better bill pay capabilities, you should open a Charles Schwab checking account. You can find that account, and others, on our checking account page.
This Looks Great and Will Get Better. But is it Sustainable?
One of the biggest worries we have at MagnifyMoney is the following: when something looks too good to be true, it usually doesn’t last long. The offer can last for a few years, but eventually market forces will catch up with it.
Providing unlimited reimbursement of ATM fees globally is expensive. Ally originally offered the same perk and then capped that benefit at $10 per month ($120 per year), because it was impossible for them to make money on the checking accounts otherwise. Aspiration does not have a magic formula, and eventually the business will need to make money somewhere.
Often, banks do not make money on checking accounts. Instead, these accounts serve as the foundation account and the bank cross-sells other products. Perhaps this is Aspiration’s plan.
Regardless, the product is very consumer friendly and potentially lucrative. According to CrunchBase, the business has raised over $20 million. Clearly, the business will need to raise more capital as it scales, especially given the low level of customer profitability expected. There is certainly limited risk to taking advantage of the great offer available now. At MagnifyMoney, we just hope that they find a way to make money sustainably. As Ally customers know all too well, it can be frustrating to switch accounts based upon a strong feature (unlimited ATM reimbursement), only to have that benefit taken away when it is deemed too expensive.
Yet for all the benefits, credit unions remain underused. As of 2017, well over 100 million memberships are held in credit unions based in the U.S., according to data from the Credit Union National Association. However, traditional U.S. banks still hold 91 percent of deposits versus 8.7 percent for credit unions.
The grass-roots, low-fee structure of credit unions can be appealing to consumers who want to save money on banking services. However, if you’re thinking of transitioning to a credit union, make sure you’re aware of the drawbacks, too.
Though credit unions can often extend lower interest rates and fees for some products, a quick look at the offerings at the largest banks and credit unions shows that some of the credit union service offerings don’t always compete with large banks. For example, if you need more sophisticated banking services — for instance, wealth management or commercial lines of credit — a national bank might be better for you.
For instance, consider the experience of business owner AJ Saleem of Suprex Learning, which provides tutoring and other academic support in the Houston area. He says that when he was shopping for a bank that could meet his small-business needs, “I chose a large bank over a credit union because of available integrations.”
He adds, “My business uses Quickbooks, and some smaller credit unions can’t automatically connect to my accounting app.”
Along similar lines, a credit union member might find the credit and debit card rewards underwhelming. According to a report by Credit Union Magazine, whose findings were published in early 2016, repeated surveys find rewards to be the top priority for consumers choosing where to bank. Even so, the report says, 61 percent of credit union decision-makers are unaware of this fact.
Meanwhile, large banks aggressively market their rewards programs and offer all kinds of enticing bonuses to attract new credit card customers.
The one credit card area in which credit unions come out ahead: cost. Larger banks might offer more rewards, but these rewards cards often come with annual fees. Credit unions tend to have low or no-fee offerings with lower APRs.
Many credit unions limit who can join based on criteria like profession, employment, alumni status or other types of associations. Credit unions will usually cite eligibility requirements somewhere on their websites. Even if you don’t meet such requirements, however, you may be able to join some credit unions by making a one-time donation or paying an annual membership fee. It’s up to you to do the research: Find out which credit unions you are eligible to join and if the benefits outweigh the potential membership costs.
Many times, your credit union will have only a handful of locations, if that. Branches might be limited to a corporate campus (if you’re a member of your credit union by way of your employer) or some small geographic area. In some cases, a credit union may only exist online.
Lyn Alden, an investment strategist, points out that a national bank might be more convenient for those who move around as well.
“If you move frequently and don’t want to change banks each time,” Alden says, “then a nationwide bank might be a better fit for you than a geographically limited credit union.”
Though credit union networks like CO-OP ATM and CO-OP Shared Branch gives members access to fee-free ATM transactions and banking services at a variety of ATMs, there are a number of credit unions that aren’t in this network. Of the roughly 5,700 credit unions that exist, only about 3,500 are in this shared network. If your credit union isn’t in the network, you’ll likely pay more in ATM fees.
Some credit unions are pretty small. If you’ll be making frequent trips to see a personal banker, you’d definitely want to check on the hours your branch will be open. Again, not all credit unions follow this pattern, so it’s useful to look into all the possibilities and constraints involving limited operations.
Credit unions don’t have deep pockets like their big-bank counterparts. Though technology adoption at credit unions is increasing, there’s still some lag in comparison with the traditional banking industry.
Some credit unions have been slow to adopt online platforms, mobile banking and other bank-related technologies. There’s a good chance that a given credit union will have painfully arcane online access options — or perhaps none at all.
Mobile banking isn’t the only thing lacking on the technology front. As of 2015, many credit unions had not yet fully converted to chip-enabled cards.
Autonomy and governance
Credit unions are independent and run by a member-elected board and board-appointed committees, which can change credit union policies on lending criteria and even actual loan approval, according to the Federal Credit Union Handbook, published by NCUA. Though these entities are designed to act in the best interest of members, it’s important to know that the board or committees may change policies that you’ve become familiar with.
On the flip side, rigidity in the credit union’s board structure can cause lags when it comes to making progress on policies that might benefit members, says Kirk Drake, credit union consultant and author of “Credit Union 2.0.”
“Credit union boards tend to take especially conservative attitudes toward change,” Drake says. “Board members sometimes miss the fact that growth and change (and thus some level of risk-taking) are part of maintaining a healthy institution.”
While credit unions have some drawbacks, it’s also true that they are gaining membership, according to figures from the NCUA. Many credit unions are advancing in ways that make them competitive with traditional banks, but that varies by organization.
If you’d like to do more research into whether a credit union or a bank will best meet your financial needs, here are some resources that can help guide your decision:
You can compare a variety of bank and credit union products on DepositAccounts.com, which, like MagnifyMoney, is a LendingTree company.
You can find a credit union near you with this locator tool.
In the end, the decision to bank with a credit union comes down to individual preferences and needs. If you value high-touch customer service over convenience and ease of use, a credit union may be the answer. And if credit card rewards and accessibility are priorities, a big bank may be a better bet.
Financial planners can’t emphasize the importance of saving for retirement enough: The earlier you start saving and the more you contribute, the better. But should you max out your retirement account? And if so, how do you do it?
Unfortunately, there’s no solution suitable for all; every individual has a different financial situation.
But let’s start with the basics: The maximum amount of money you can contribute to your 401(k), the retirement plan offered by your company, is currently $18,000 a year if you are under age 50, and $24,000 if you are 50 or older. If you were starting from scratch, you would have to tuck away $1,500 a month to max it out by year’s end.
This is a big chunk of money. And although there are multiple benefits to saving for retirement, you may want to think twice before hitting that maximum.
Remember, this is money that, once contributed, can’t be withdrawn until age 59.5 without incurring penalties (with some exceptions).
What’s more, putting away a significant portion of their savings to max out their retirement fund doesn’t make much sense for some workers.
If you are fresh out of college and your first job pays $50,000 annually, you’d need to save 36 percent of your paychecks to max out your 401(k) for the year.
“Everyone needs to save for retirement, and the more dollars you could put in, the earlier, the better, but you also need to live your life,” says Eric Dostal, a certified financial planner with Sontag Advisory, which is based in New York. “To the extent that you are not able to do the things that you want to accomplish now, having a really really robust 401(k) balance will be great in your 60s, but that would cost now.”
A few things to consider BEFORE you max out your 401(k)
Do you have an emergency fund for rainy-day cash? If not, divert any extra funds to establish a fund that will cover at least three to six months’ worth of living expenses.
Do you have high-interest debt, such as credit card debt? High-interest debts, like credit cards, might actually cost you more in the long run than any potential gains you might earn by investing that money in the market. Still, if you can get a company match, you should try to contribute enough to capture the full match. It never makes sense to leave money on the table.
Do you have other near-term goals? Are you planning to buy a house or have a child anytime soon? Do you want to travel around the world? Do you plan to pursue an advanced degree? If so, come up with a savings strategy that makes room for your nonretirement goals as well. That way you can save money for those big-ticket expenses and will be less likely to turn to credit cards or other borrowing methods.
Maximize your 401(k) contributions
If your emergency fund is flush, your bills are paid and you’re saving for big expenses, you are definitely ready to beef up your retirement contributions.
First, you’ll want to figure out how much to save.
At the very least, as we said above, you should contribute enough to qualify for any employer match available to you. This is money your employer promises to contribute toward your retirement fund. There are several different ways a company decides how much to contribute to your 401(k), but the takeaway is the same no matter what — if you miss out on the match, you are leaving free money on the proverbial table.
If you are comfortable enough to start saving more, here is a good rule of thumb: Save 10 percent of each paycheck for retirement, though you don’t have to get up to 10 percent all at once.
For instance, try adding 1 percent more to your retirement fund every six months. Some retirement plans even offer automatic step-up contributions, where your contributions are automatically increased by 1 or 2 percent each year.
Larry Heller, a New York-based certified financial planner and president of Heller Wealth Management, suggests that you increase your contribution amount for the next three pay periods and repeat again until you hit your maximum.
“You will be surprised that many people can adjust with a little extra taken out of their paycheck,” Heller said.
Once you’re in the groove of saving for retirement, consider using unexpected windfalls to boost your savings. If you get an annual bonus, for example, you can beef up your 401(k) contribution sum if you haven’t yet met your contribution limit.
A word of caution: If you’re nearing the maximum contribution for the year, rein in your savings. You can be penalized by the IRS for overcontributing.
If your goal is to save $18,000 for 2017, check how much you’ve contributed for the year to date and then calculate a percentage of your salary and bonus contributions that will get you there through the year’s remaining pay periods.
In 2012, Heather Vernillo, then 33, learned she had kidney cancer. The Tampa-area nurse had emergency surgery days later. While her health insurance covered 100 percent of her care, the experience left her unable to work for 15 weeks. This translated to more than four months of missed income, plus a $1,100 monthly bill for COBRA, which kept her health coverage intact during her involuntary hiatus.
Vernillo’s emergency fund turned out to be her saving grace through an ordeal that cost her roughly $7,000.
“The situation pretty much wiped out my savings, but it was worth every penny,” she told MagnifyMoney.
Vernillo is no millionaire. As a nurse, her annual income fluctuated between $95,000 and $50,000 before her diagnosis. (She took a pay cut when she moved from New Jersey to Florida in 2012.) Nonetheless, she says her approach to building her rainy day fund was simple: She set up automatic monthly withdrawals from her checking account to her emergency fund, treating it like any other line item on her budget. It took about two years to build up a fund sufficient enough to cover the expenses she incurred during her medical crisis.
Now, she is focused on rebuilding her fund. This wasn’t always financially easy, she admits, but after her health scare, it was a top priority.
“I’ve been able to partially replenish [my savings] and currently have about two months’ worth of expenses tucked away, just in case,” she says.
Choosing your best worst option
When people don’t have cash on hand for emergencies, they’re more likely to turn to alternative borrowing methods that could wind up costing them much more down the road. (Hello, payday loans.) Sometimes, it can feel like a painful choice from an array of bad options.
If you’ve exhausted all your best options for cash — you’ve emptied your bank account and asked friends and family for loans — then it’s time to look at your next best alternative. And at this point, it’s about choosing the option that will cost you less in the long run.
If you’re overwhelmed with medical bills, for example, ask the doctor or hospital to put you on a payment plan. Or consider a personal loan or a low-interest credit card — whichever option carries the lowest APR. Check out our ranking of the 10 best options for cash when you need it fast.
“If you don’t have any other options, then using a credit card or personal loan to pay for an emergency is better than defaulting on a bill, which can negatively impact your credit score,” Natalie Colley, a financial analyst with Francis Financial, tells MagnifyMoney. “You’ll pay more in the long run with interest, and ultimately you’re setting yourself up for financial instability and getting caught in a debt cycle.”
The key is to use these methods as a last resort and create a plan to pay down the debt as soon as possible.
Thanks to consistent monthly contributions, Marvin Fontanilla, a 35-year-old marketing professional in San Jose, had $8,000 tucked away in his emergency fund. It was enough to cover three months’ worth of expenses, and it came in handy back in August, when the battery on his hybrid car called it quits. A replacement cost $2,200, and an additional $622 for a rental car to use during the repair.
“It didn’t make a huge dent in our savings because my fiancee and I live way below our means,” Fontanilla says. “We’ve actually already replenished it by taking money we normally use to make aggressive student loan payments and redirecting it back into our savings account.”
While we certainly can’t anticipate every financial emergency that lies ahead, he adds that the death of his car battery didn’t come completely out of the blue; he knew when he bought a hybrid that the battery would likely have to be replaced once he hit 200,000 miles, so the expense was already in the back of his mind.
How much should you save?
Just as there’s no way Vernillo could have predicted her cancer, it’s impossible for any of us to really know what financial twists and turns are in our future.
“We can plan until we’re blue in the face for what lies ahead financially, but no matter how great our planning is, emergencies happen,” says Colley.
She tells her clients to live by a basic rule of thumb for savings: Save for at least three to six months’ worth of expenses.
“That’s a large number, and it’s going to take years to get there, but the important thing is to establish the habit of putting money aside every month and having it automatically transferred from your checking account to your savings account,” she says.
How much you contribute each month depends on a number of factors, not the least of which are income and expenses. After accounting for fixed bills and variable expenses like food and entertainment, what’s left should be divvied up between your financial goals. If your emergency fund is at zero, Colley suggests starting small and focusing solely on the first $1,000; a safe cushion in case of a minor setback.
Once you hit that milestone, you can begin redirecting some money toward other financial goals (like paying off high-interest debt, dialing up your retirement contributions or saving for a down payment on a home) while continuing to build your emergency fund. Everyone’s goals are different, but the main takeaway here is that it isn’t an either/or situation. Rather, it’s all about saving for multiple goals at once.
Where to stash your savings
Where you keep your emergency fund matters. Colley likes the idea of keeping it at a bank that’s separate from a regular checking account. (Out of sight, out of mind.) She recommends going with an online, high-yield account, like Capital One 360, Ally or Synchrony. While a traditional savings account at your local bank will likely only pay 0.01 percent, these online accounts dole out 1.20 percent with no minimum balance requirement.
Another plus is that it typically takes three days to transfer money into your checking account, which reduces the likelihood of impulsive withdrawals. The idea is to build an emergency fund that’s liquid, but not so liquid that you’ll be tempted to dip into it when the mood strikes.
For smaller pop-up expenses that leave you needing cash on the spot — a flat tire or overdraft protection, for example — Colley says it’s not a bad idea to keep a few hundred dollars in a traditional savings account that can be tapped immediately.
“Having a fully funded emergency savings doesn’t happen overnight, and it also shouldn’t be your one and only focus,” Colley says. “If you do that, all your other goals will come to a grinding halt while you build your savings account.”