Now You Will Absolutely Hate Your Savings Accounts

Estimated Reading Time: 7 minutes

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. ― Henry Ford

Henry Ford’s statement is quite powerful. Many people do things without truly understanding why they do it. In many instances, they do things because it’s considered the norm by society or another person influenced them. If everyone took the time to understand everything they do, the world would be a much different place, and many of the systems of control may not be in existence today.

Though he died centuries ago in 1947, his statement stands true to date. The traditional banking and monetary system is the most utilized system for transacting, doing business, saving, and investing. Many people who use it do not truly understand it and do not realize that the system aims to make as much money off of them, the customer. Let us look at a typical scenario that most people follow:

1. Open a Checking Account
2. Save money in a Savings Account
3. Open a Certificate of Deposit
4. Take out multiple Credit Cards
5. Take out a Loan or multiple Loans (Car, House, other)

This post would be too long if we go in-depth with each of the listed activities above. Therefore, we will only focus on items 2 and 3, starting with the basics.

UNDERSTANDING BANKS

What is a Bank?

According to Investopedia, “A bank is a financial institution licensed to receive deposits and make loans. Banks may also provide financial services, such as wealth management, currency exchange, and safe deposit boxes.”

How do banks make money?

Banks cannot make money until they have your money. Then, they use your money to create loans. The amount of interest collected on loans is much higher than the amount of interest paid to customers with savings accounts. The difference obtained is the banks’ profit. For a better understanding or more context, research Fractional Reserve Banking.

Banks also make money by charging a lot of fees. Some of these fees include:

1. Account fees (Maintenance fees)
2. ATM fees
3. Transaction fees
4. Penalty charges
5. Application fees
6. Commissions

N.B. Those mentioned above are not the only ways that banks make money.

UNDERSTANDING SAVINGS ACCOUNTS

Banks offer many types of Savings Accounts. It is essential to understand the most common types and the difference between them. We will only be focussing on the following:

1. Regular Savings Accounts
2. High Yield Savings Accounts
3. Certificates of Deposit

Regular Savings Accounts

Regular savings accounts are deposit accounts where you store money that you do not need right away. These are federally insured up to $250,000 at banks by the Federal Deposit Insurance Corp. (FDIC) and at credit unions by the National Credit Union Association (NCUA) in the United States. This means if the Bank or Credit Union fails, you are only covered up to $250,000.00. (Rules may be different for your jurisdiction) Regular Savings Accounts also pay the lowest Annual Percentage Yield (APY). (see the table below)

Example

This example shows the interest earned on Regular Savings Account with interest compounding and crediting monthly for a specific duration:

• Initial Deposit – $500.00
• APY – 0.01%
• Months – 12
• Monthly Deposit – $500.00
• Ending Balance – $6,500.35 (can vary)
• Interest Earned – $0.35

High Yield Savings Accounts

High Yield Savings are like Regular Savings Accounts but have some key difference:

1. They pay higher interest rates (see table below)
2. Withdrawals are limited to six per statement cycle (Penalties may be applicable if you go over the allowed limit – would vary by institution)
3. Penalties are charged if the minimum is not maintained

Example

This example shows the interest earned on a High Yield Interest Account with interest compounding and crediting monthly for a specific duration:

• Initial Deposit – $500.00
• APY – 2.00%
• Months – 12
• Monthly Deposit – $500.00
• Ending Balance – $6,565.40 (can vary)
• Interest Earned – $65.40

Certificates of Deposits

Certificates of Deposit (CDs) offer higher APY than Regular Savings Accounts but are different from both Regular and High Yield Savings Accounts:

1. The longer the term and the greater the deposit, the higher the APY (see table below)
2. Money is locked away for an agreed period, ranging from 3 months up to 10 years.
3. Steep penalties for early withdrawal.

Example

This example shows the interest earned on $6,000.00 CD for 12 months and  a fixed APY of 0.07% :

• Initial Deposit – $6,000.00
• APY – 0.07%
• Months – 12
• Ending Balance – $6,004.20
• Interest Earned – $4.20

Summary

The returns paid by banks on any of the mentioned Savings Accounts are significantly minimal compared to the interest they earn on customers’ money. Even if you deposit a large amount of money to your account, between $10,000 to upwards of $250,000.00 (if your bank offers high-value account benefits), your APY will not cross 3%. (see the table below)

Not to mention that the examples above do not take into consideration the annual inflation rate of 2-3%. Not only are you paid a minimal percentage interest on your money, but your cash would also be losing its buying power while it sits in your bank account not working for you. 

It pays to understand money and the financial system. The investment products provided by banks are not with customers best interest in mind, but the amount of profit they can obtain. Therefore, it is essential to consider alternative options that make your money work for you.

So where should you put your money? There are several options and factors to consider before making such a decision. We want you to be successful at investing and help you grow your wealth by making your money work for you.

Imagine not having a guide on a dangerous trail that you have never hiked before or a mechanic doing your surgery. Both scenarios are equally uncomfortable and can be fatal to your life. Similarly, a lack of education about money can be fatal to your finances.

This is why we created our courses to educate persons about cryptocurrency, finance, and alternative investing, so they can start to build wealth for themselves, their families, and future generations.

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