Will Bueché

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No Deposit No Return

Posted in Personal by Will on Friday, August 1st, 2008 ~ 2am

I’ve decided to open a second bank account, one that will be easy to put money into but difficult to get money out of. I.e. purely a savings account, not linked to any checking or card, not something I could spend. It will be my intention to put a paycheck into it perhaps every 1 out of every 4 times.

UPDATED AS I’VE LEARNED MORE: I researched this some more. I’d planned to simply walk down to any of the nearby banks such as Chase or Wells Fargo, however I read about some banks that offer savings accounts that offer higher interest rates — 3% instead of 1 or 2% — in exchange for requiring interaction with them to be entirely online. In light of my intent to simply deposit money and make no withdrawals, this is acceptable.

Click here for one of the articles I read. The article is somewhat out of date in that it claims 5% interest rates, but really they’re all 3% or 3.5% now. I studied “Online Savings Account, HSBC Direct”, “Ultimate Money Account, Citibank”, and and “Online Savings, Washington Mutual”. Was warned away from Washington Mutual due to the housing collapse [Update: good advice — WaMu went under Sept 25]. Not saying which one I’ve applied for, but, this was the direction I went in. On page 2 of that linked article, there are also some banks which exist entirely online, but since their interest rates are no better than the traditional-banks that offer online-only service, I did not explore them.

I could get 4% if I put money into CDs. CDs, which are available from most any bank, require you to keep your money in them for between 7 months to a year and a half, so I couldn’t buy into those yet, but if I had loads of cash, CDs would be advantageous.

Another way to go, a way with risk, is to save up a few thousand and then buy into a mutual fund (which tend to have minimum initial investments of 2 or 3 thousand bucks). The value of a mutual fund may go up or may go down — so I could not bother with that risk, especially since there are hints of a worldwide economic slowdown or collapse. But it seems like all the articles basically say that if you never take the risk on mutual funds, you will never make it. Whereas if you do get into a mutual account (or more than one, ideally), some of you will make it and some will never make it. Here’s an editorial about why mutual funds can be a disaster.

IRAs are often mentioned. The reason I’ve avoided IRAs is because you aren’t supposed to remove money from IRAs until you are elderly and retired — but there’s no assurance that anyone will actually get old and retire so that seems kind of like a gamble, one I am not willing to take.

An article for “Gen X” on the Motley Fool is what shook me up into this. The article said I’d need to deposit about $600 to $1,000 every month (!) into an IRA or “401K” (something big businesses apparently offer, never been offered to me) starting now if I expect to have a million dollars by the time I am “retired”. Obviously, I can’t afford to do that. But I can start something.

I’m thinking more about how it would be nice to have some money if I ever need a house or anything life changing like that.

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