The Brunch Table

I had some lean times after I moved up to Boston, but thanks to a good job and a low-overhead carfree lifestyle, my savings have been building back up over the past year or so. My relationship with Quicken has run hot and cold, but lately my financial strategy has mostly consisted of glancing at ATM receipts and brushing off the occasional thought that I should do something more productive with my spare change than leaving it in my checking account.

Lately, I’ve finally gotten around to doing some reading. The current inflation rate has been on the order of 2-3% lately, which means that money that you leave sitting around under the mattress or in a typical checking account is losing value at about that rate. Now, the way to make big money is to invest in volatile securities like stocks and mutual funds and the like, but I got burned quite a bit by them in the recent downturn. However, there are plenty of lower-risk savings products that will help your savings keep pace or exceed inflation while keeping your money relatively available to you if you need it.

The most common options are savings accounts, which are insured and generally allow ready access to your money; money market funds, which are not insured but also allow easy withdrawals; and certificates of deposit, which tend to offer better interest rates at the cost of only being able to withdraw your money after a specified amount of time (often 1-5 years).

If you check out bankrate.com (which is a pretty good reference on financial matters), you’ll see that current interest rates are pretty low. Most savings accounts only have something like 0.5% APY (annual percentage yield, the amount of interest you’re likely to earn on your initial deposit over the course of a year). However, there are a few online banks which are offering savings accounts around 2% APY, which is closer to the inflation rate. According to Bankrate, money market funds are also at around 2% APY right now. The interest rates on CDs depend on how long you’re willing to wait, from about 1.5% APY for a 1-year certificate to about 4% APY for a 5-year one.

(warning, pimping ahead) Last month, I finally opened a savings account with ING Direct, which is an online savings bank. They currently offer 2% APY on savings, with no minimum balance and no fees. The mailing they sent me gave me a bonus $25 just for opening the account and keeping some amount of money (again, no minimum) in there for a month. They don’t obviously offer that deal online, but they do have the PayPal-style thing where I can offer you the $25 bonus (and I get $10).

I’ve been very happy with my account so far–you can manage everything online, and you can easily transfer money between your ING savings account and your checking account at your local bank via EFT. I just got my first statement today (which is what reminded me about all of this), and I was pleasantly surprised at the amount of interest I’ve earned already. (OK, I’m done pimping)

There are several online banks that offer savings rates in that range, so I encourage you to check them out if you aren’t earning much interest on your money right now. And remember, if you’re carrying credit card debt right now, paying that off is usually the best investment you can make.