Military Savings Account Comparison
Last week we brought up some questions: What is the right mix between saving cash and investing? Where should I invest? Who has the best savings account for me? What else do I need to consider? A couple of those we answered. We talked about whether we should be saving or investing, and at what ratio if we do both. We gave some rules to live (or save) by. We touched on a brief Military Savings Account comparison.
Today, let's pick up where we left off and dive deeper into the savings account options. I mentioned I was disappointed to find that Military banks like USAA and Navy Federal have much, MUCH worse interest rates than you can readily find other places, and there is no really superior “veteran” non-retirement savings product. I found lots of options, including Capital One, Ally, and Discover that were between 0.80-1.00%.
I thought I would show you what I mean. Typically, our Home Loan competition on a national level consists of Veteran's United, USAA and Navy Federal. Since VU doesn't have a banking arm, that leaves the popular options of USAA and Navy Federal. As of this past week, here are their offerings according to their website:
In a word, not good.
Navy Federal Credit Union
Better, but still not good.
Especially when you consider the general alternatives available for both veterans and non-veterans alike.
There's no need to reinvent the wheel here as websites like Bankrate exist to help you compare offers. I did however, want to add two things to the conversation.
The first is to explain that there is, of course, a difference between an "online bank" and a brick and mortar bank that allows you to open an account online. There is also an inverse relationship between 'how much your saving' and 'how sensitive you are to small differences in savings account interest rates'.
Let me explain by starting with, actually, my 2nd goal-which was to give you a snapshot of Bankrate's top offers:
So here's what I mean: Let's say that Ally Bank offer catches your eye because it has a solid 1% interest rate, no minimums, and no monthly fees. That's a pretty good offer comparatively speaking. Now, let's say your own bank, that place you do your checking (wherever that may be), offers a savings account at 0.25% APY (Annual Percentage Yield). If you had a $100,000 in that account, the difference in annual interest between your bank and the Ally account would be $750. Now, to someone that has only $2000 in their savings account, that would be a ton of money. The problem is that for the someone that only has $2000 in their savings account the 0.75% difference in annual interest would only equal $15. It's all relative.
Ally Bank is strictly an Online bank, whereas the bank you work with now probably has a strong online presence but also has a place for you to walk in and talk to someone. While I do that very rarely, it has value. So, for the person that has so much money in savings, is using two separate banks worth the annual savings? Maybe. If so, you should probably be investing.
And for the person with less savings, is $15/year (in other words, $1.25 per month) compelling enough for you to take the time and effort to start the relationship with another bank? I doubt it.
My point is this: If you're wondering what bank is providing you the best interest on a new savings account (which you are if you've read this far), you are likely asking the wrong question! In this stupendously low interest rate environment, you are splitting pennies relative to your balance.
If we are talking about your Emergency Fund that we discussed last time, my advice would be to leave it with your current bank in an account that you don't use and don't worry too much about the interest rate. The important factor here is accessibility, and convenience.
When it comes to your life savings, you need to seek a better return than savings alone. You can choose to forego interest for convenience, or you can chase the higher (but still too low) interest rates of Ally or one of the other competitors, but either way, you are probably not making a significant positive impact to your financial life. When rates are this low, you can't do that with a savings account. You need to try something else.
In some cases, this means greater market risk, but it doesn't always have to. In our next article, we'll talk about the different options you may have, from least risky to most risky.
Remember, I used to be a licensed financial advisor, but I am not any longer. Please consult a tax advisor or Certified Financial Planner before making any large financial decisions.