Tuesday, March 27, 2007

Checking account has more than one month's expenses in it? You are wasting money!

Checking accounts pay notoriously low interest rates. For instance, my Wells Fargo account pays a measly 0.1% Annual Percentage Yield (APY) for up to $5,000 balances and a 2.75% APY for balances from $5,000-$100,000. Those rates just aren't very good! You should keep as little money as possible in your checking account (I find one month's expenses to be comfortable). As an alternative, I set up an FDIC insured SavingsLink account with Countrywide. This account pays 4.00% APY on balances less than $10k, 5.25% from $10k-$50K, and 5.40% for balances above $50k. The account is linked to my Wells Fargo account and allows me to transfer money back and forth with just a few clicks of the mouse and a two day lag typically. There are numerous other accounts out there, but Countrywide is paying the highest rates right now. In fact, the blog over at getrichslowly.org just detailed the highest paying accounts in this post. Rates tend to vary over time, so if you are reading this long after the original post you should check Bankrate for Money Market Accounts (MAAs) in the Checking and Savings section to compare rates. If you have $25k lying around for emergencies (and I do advocate having a little something stashed away), you will save $625 per year by keeping that money in a higher yielding online savings or money market account as opposed to in your checking account.

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