Your savings account should be making money 🏦

When I was about 15 years old, I walked to the Main Street of the suburban town I grew up in with my mom to open my first bank account. I was going away for a few weeks over the summer and would need to be able to take money out at ATMs because my parents didn’t want me traveling with too much cash. The closest bank to us was TD (also conveniently branded “America’s most convenient bank” 😉). They had a student account option, which seemed friendly and accessible, so without question, we opened my first checking and savings accounts here.

Fast forward 10 years. I’m twenty-five years old, still using TD bank. In fact, most of my money is in cash at TD (either in my checking or savings accounts). I have little concept of what it even means to have money “in cash” (I now know that it’s money that’s readily accessible that you could literally have it in cash in your hands that day). While it’s important to ideally have a cash savings cushion or emergency fund in the bank that you could live off of for 3–6 months if you had to, the downside of having money “in cash” is that it’s not invested, it’s not making (much) money, and it’s sort of just sitting there (actually decreasing in value over time because of inflation).

If you’re still skeptical of exposing your money to the stock market or haven’t felt ready to make that small jump yet (and really, it can be a super small jump to start), the least you can do is make sure that your savings account is making some money.

What does this mean?

Basically, savings accounts give you interest. When you hear interest, you might think “yikes!” because you associate it with paying more money. But this kind of interest is good — your money makes money, similar to what it can do in the stock market. However, the interest you earn in a savings account is a lot less than what you would have the potential to earn in the stock market.

I am somewhat conservative about this, somewhat new to the stock market, and also fortunate enough to have access to enough resources that I can keep about a year’s worth of “emergency funds” in my savings account. Everything else goes into my retirement account or my general investing account with Betterment.

Once I learned that savings accounts can earn interest, I was curious to find out what kind of interest rate I had on my savings account at TD. With a little investigating, I learned that the interest rate on my savings account was .05%. That’s IT. So for every $10,000 in my savings account, I would make $5 of interest. While I would argue that this money would perform best in the stock market (where I could expect to make ~$700 on $10,000 on any given average performing year in the market), I knew that .05% was definitely not the best rate I could get with a savings account.

With support from my partner and some quick research myself (literally googling, “savings accounts with high interest rates”), I landed on Ally Bank, where my savings account currently earns 2.10% interest (using that same $10,000 I would make $210 in interest at Ally as opposed to $5 at TD).

This is all to say: whatever amount you keep “in cash” in your savings account, this cash should still be doing everything it can to make money. If your interest rate seems low (with all the options out there, anything less than 2% is honestly low), do some research and see if there’s a bank that might be a better fit for you.