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Strategies to Save

How My Emergency Fund Saved My Finances

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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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’s experience underscores the vital importance of keeping a cash reserve on hand. Still, two-thirds of Americans would struggle to cover a $1,000 emergency, according to a 2016 poll conducted by The Associated Press-NORC Center for Public Affairs Research.

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.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Strategies to Save

Review: The Aspiration Account

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

The 0.25% APY has one of the highest rates in the country. If you move both your checking account and savings account into an Aspiration 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.

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 cash management 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 using 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 Account

Opening an account used to be a bit challenging as you needed to be invited. However, Aspiration has made it as simple as ever to open an account. Simply click on the “Get Started” button on their website and enter your email address.

 

At that point, you should be directed to a page that allows you to open your account online and apply for the account.

 

Create your password, check the box to let Aspiration know you’ve read the Terms and Conditions, and click “Let’s Go!”. Since this is an online 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. Aspiration has partnered with Coastal Community Bank 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 Mobile App

In 2016, Aspiration joined the rest of the financial industry with the launch of their mobile app. Their app allows you to view your Aspiration Account balance and transaction history, remote deposit checks using your phone’s camera, schedule transfers between the Aspiration 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:

  1. Their Payments feature
  2. Their Aspiration Impact Measurement (AIM) feature

Payments

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.

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.
  • Zero overdraft and stop payment fees: This is a huge perk as these are some of the “gotcha” fees that you’ll encounter at big banks.
  • Other fees are also fairly lower than big banks: Outgoing wire transfers and receiving an incoming wire transfer will only cost you 82 cents.
  • 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 your entire balance. The best online checking account in the market is currently paying 1.55%, but you need to maintain a balance to earn this APY.
  • 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.
  • All deposits are FDIC-insured, up to $250,000 per depositor.

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 Account Now?

The perfect profile for an Aspiration Account 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 impact you make on people and the environment.

SEE DETAILS Secured

on Aspiration’s secure website

Alternatives if This Account is Not Right For You

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 1.75% with an online savings account with a moderate deposit amount requirement. 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 $67 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.

promo-checking-wide-v2

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Reviews, Strategies to Save

American Express® Personal Savings Account Review: A Solid Choice for Online Banking

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

What you need to know about the American Express savings account

American Express Savings Account Features

APY (%)

1.60% variable

Minimum Deposit Amount

$0

Account Minimum

$0

Permitted Monthly Withdrawals

Up to 6

Annual Fee

$0

FDIC Insured?

Yes

Mobile App?

No

Transfer Time

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 1.60% APY. It isn’t the highest APY you can currently earn from an online savings account listed on our site, but it’s still 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 60 days of applying for the account. If you’re concerned about safety, know that the FDIC insures your deposits of up to the legal limit.

The account appears to be a great option for savers who want the flexibility of earning a high interest rate on a large sum without the withdrawal restrictions of a certificate of deposit (CD).

How the American Express savings account works

The savings account compounds interest daily. It’s current APY 1.60%, and amount earned is credited to your account on your monthly cycle date. The rate is variable, which means that 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 60 days, which you can do by setting up a bank transfer or direct deposit to the savings account. If you prefer a physical method, you can send a check.

Federal law mandates certain types of telephone and electronic withdrawals, including transfers from savings accounts up to 6 per statement cycle. This applies consistently across savings accounts.

What we like about the American Express savings account

  • High APY: The account’s 1.60% APY is better than what you would earn by putting your money in the accounts offered by most brick-and-mortar banks. In fact, it’s within 0.3% of the highest-yielding savings accounts. While there could be higher rates available elsewhere, this account remains a solid choice based on yield.
  • 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 your saving automatic and without emotion, you can even have a portion of your paycheck directly deposited to the account.
  • Spending discouraged: With your money in an online account like the American Express Personal Savings account, you can get your cash only after making a transfer to an external checking account to which you have debit card access. The minor inconvenience could be just enough to keep you touching the account and making unnecessary withdrawals.

What we don’t like about the American Express savings account

  • No ATM card, no checks, no debit 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 Automated Clearing House (ACH) transfer from your online American Express savings account can be problematic if you need immediate access to your funds. Also, the account terms state that transfers can take one to three business days for funds to become available in your checking account. If you’re worried about this, there are alternative high-yield accounts you can use that offer an ATM card linked to the account.
  • Variable APY: The annual yield American Express is offering on this savings account is high at 1.60% APY, but the bank can change that rate at any time and for any reason. If you’re looking for a more predictable rate of return, consider a certificate of deposit. CDs might not offer competitive yields, but you will know exactly what your return will be.
  • Limited withdrawals: Because this is a high-yield savings account, Federal law mandates certain types of telephone and electronic withdrawals, including transfers from savings accounts up to 6 per statement cycle. Some savers have a separate account for emergencies in case they max out their savings withdrawal but still need immediate funds.

American Express vs. top online banks

American Express Savings vs. Other Online Savings Accounts
Vio BankBarclays BankMarcus by Goldman SachsAmerican Express
APY1.75%1.60%1.70%1.60%
Minimum Deposit Amount100nonenonenone
Account Minimum1000.01nonenone
Permitted Monthly Withdrawals6666
Annual Feenonenonenonenone
FDIC Insured?YesYesYesYes
Mobile App?YesYesYesNo
Deposit SpeedDeposits will be made available in two to five business daysDeposits will be made available within five business daysDeposits will be made available the next business dayDeposits 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 enlisted MagnifyMoney’s team to shed light on some national, online-only banks with a health rating of a B or better and with the highest APYs on savings accounts — as listed on DepositAccounts.com, another LendingTree site. 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.

Vio Bank-MidFirst Bank – High Yield Online Savings Account, 1.75% APY, $100 to open (no ATM card)

The Vio Bank High Yield Online Savings Account is a solid choice for savers. The high APY and low minimum deposit make this account extremely attractive not only for savers but investors as well, as the interest rate outperforms most CD rates available at competitive banks.

The ACH transfers seem to take little time – between two to five business days – and you are limited to six withdrawals per billing cycle, but the positives outweigh the negatives. It isn’t commonplace to find an online savings bank with an app but Vio Bank delivers, all without charging monthly maintenance fees.

SEE DETAILS Secured

on Vio Bank’s secure website

Member FDIC

Barclays Bank – Online Savings Account, 1.60% APY, no balance to open, no monthly maintenance (no ATM card)

Barclays Bank, one of the largest in the world, seems to offer an account that competes against the best of the other online banks. A high APY and no minimum account balance – not to mention no balance required to open – make this an attractive choice.

The Barclays landing page for this account makes it easy for you to set savings goals and open the account. The APY may only be slightly higher than the American Express Savings account, but the ease of use and customer service give Barclays a distinctive edge.

SEE DETAILS Secured

on Barclays’s secure website

Member FDIC

Marcus by Goldman Sachs – High-Yield Online Savings Account, 1.70% APY, no minimum deposit (no ATM card)

Savers can earn a competitive 1.70% APY in their Marcus by Goldman Sachs® High-Yield account, making deposits up to $1,000,000 per account. The account needs to be funded within 60 days via transfer, direct deposit, check or wire. Goldman Sachs Bank USA doesn’t charge any fees or service charges.

Like with most accounts of this type, there isn’t any ATM access, and savers will need to withdraw their money via ACH transfer, wire transfer or check. Still, the account allows high balances and boasts a healthy APY, making it a smart choice – one that appears to outpace the American Express account.

SEE DETAILS Secured

on Goldman Sachs Bank USA’s secure website

Member FDIC

American Express CD Rates

These CDs are great for those who don’t have a lot of money to deposit. The rates are slightly lower than the best CD rates available, as listed on our site, but the ease of access keeps them attractive.

Term

APY

6 months

0.40%

12 months

1.85%

18 months

1.90%

24 months

1.90%

36 months

1.95%

48 months

1.95%

60 months

2.00%

CDs from American Express do not require a minimum deposit amount. You’re free to deposit as little or as much as you want to begin earning interest on any of its CD terms. This is great for individuals who don’t have a lot of money to deposit in CDs offered by other online banks. The downside is that you won’t be receiving as high of an APY as you could at other online banks.

How CDs offered by American Express work

American Express offers terms spanning from 6 months to 5 years on its CDs. Interested is credited on a monthly basis and compounds until the CD matures. You can choose to have the interest transferred out of the CD and into the American Express Personal Savings Account on a monthly basis, transferred into a linked account, or mailed to you monthly, quarterly or annually via a check. If you touch the principal, however, you’ll incur an early withdrawal penalty. The penalty is based on your CD’s term:

  • For CDs with a term of less than 12 months: 90 days’ worth of interest
  • For CDs with a term of 12 months, but less than 48 months: 270 days’ worth of interest
  • For CDs with a term of 48 months: 365 days’ worth of interest
  • For CDs with a term of 60 months: 540 days’ worth of interest

If you’re able to keep your principal and interest within the CD, you’ll receive notice, either by mail or email, that your CD is about to mature in 10 days. If you don’t tell American Express that you do not wish to renew your CD, it will automatically be renewed for the same term unless the bank no longer offers that term. You can call American Express any time before your maturity date to tell them that you do not wish to have your CD automatically renewed.

Online banks vs. brick-and-mortar banks

Online banks have been experiencing growth that outpaces that of their physical counterparts not only because of the rise in mobile banking among consumers due to convenience, but also because the online banks can offer more benefits as they don’t have to deal with as many overhead expenses as brick-and-mortar banks do.

A 2017 study by DepositAccounts.com, another subsidiary of LendingTree, showed the annual percentage yield that internet banks offer on savings accounts was more than four times of what brick-and-mortar banks or credit unions offer.

Simply put, the main benefit of putting your money in an online savings account is your money does more for you than it might in a traditional savings account. In its 2017 study, DepositAccounts provided an example based on the average APYs in certain savings categories: If a saver were to put $100,000 in a savings account and leave it alone for 10 years, he or she 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. This test assumed a fixed APY.

Overall Review of the American Express Personal Savings Account and CDs

Overall, the American Express Personal Savings Account is a solid, high-yield online savings option. The interest rate it offers is high, and the features of the account are comparable to other online banks’ savings accounts. The account also carries the cachet of the American Express name. While there are certain aspects of the Personal Savings account that could be improved, other online banks appear to encounter similar obstacles.

American Express CDs, when compared against those by other banks, don’t quite measure up. The interest rates of the 6-month and 12-month CDs are nowhere near the best rates offered by other online banks, as seen in our rankings, and the rates on the 18-to-60-month CDs fall short of the other rates offered. The only feature that makes American Express stand out from most of the other online banks is that it doesn’t require a minimum deposit to open an account and start earning interest. If you’re not quite ready to deposit a huge chunk of money into a locked account, you may want to start out small with one of the CDs offered by American Express.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.