I pulled the bulk of my money out of my savings account months ago when interest rates started plummeting. My goal right now is actually two-fold; to preserve my current savings through diversification (such as foreign currency and commodity investments), and to aggressively pay down my debt. There is simply no incentive for me to continue putting money away in a bank account with current deflated interest rates and rampant inflation. I don’t know about others, but I prefer to maintain the purchasing power of my hard earned savings. Sigh. At least this tremulous financial climate gives me an excellent incentive to focus on paying off my debt this year in its entirety – and to stay out of debt forever.

And at least I’m faring better than the average IndyMac customer, who was blindsided last week when their bank pooped out, and where some had a rather rude awakening upon realizing their assumption that all deposits were insured was terribly misguided.

Is money safe in the bank? Generally, yes it is. There however exist federal guidelines to help shelter bank deposits from unnecessary risk. I’m rather astonished folks with such large balances of savings weren’t aware of this.

FDIC insurance –

Even though this information can be found with a tiny bit of research, I’ll try to provide the general gist here. The Federal Deposit Insurance Corporation (FDIC) fully insures individual bank accounts up to $100,000 per depositor, and up to $250,000 for certain retirement accounts, such as an Individual Retirement Account (IRA). It does not, however, cover investments in bonds, stocks, mutual funds, annuities, life-insurance policies or municipal securities.

Since each account is insured separately, coverage beyond the $100,000 threshold can be increased by opening an account at a separate bank – (it has to be a different bank though and not another branch of the same bank, obviously.) Assets can sometimes be spread out between different account types at the same branch as well so if you’re unsure, it’s always best to consult your financial institution for strategies to ensure maximum insurance coverage.

You can also use this form to verify if your banking institution is currently FDIC insured: FDIC Bank Find

(Recommended Reading: FDIC Website)

Indymac bank failure

As a flux of IndyMac customers are now unfortunately discovering, exposure to risk is greatly increased when an account exceeds $100,000 and the bank flops. The FDIC will immediately step in to liquidate and disseminate the bank’s remaining assets, but you may have the unpleasant experience of receiving but a mite of your balance again.

My heart really goes out to the hapless people in this video clip as they waited outside IndyMac this week to withdraw funds.

(Oops, I had to remove the embedded video due to a coding issue with FireFox web browser. To view a clip of the video, click the link below)

IndyMac Bank Run Confrontation in California

One man ‘couldn’t find his balance’ since the machines weren’t operating; he had no idea what his current bank balance might be or how to withdraw money for his pending bills. My local news showed a distraught customer who claimed to have over $320,000 in a savings account and was mendaciously led to believe the entire balance was insured due to three names being on the account.

This only reinforces my antipathy for blindly entrusting others with hard earned savings, and why it’s prudent to understand all the nitty gritty details involved in any type of investment. Banks are usually safe havens, but even anchorable banks can fail.

I’m shocked that people weren’t more cognizant of the FDIC guidelines and hopefully this IndyMac incident will bring awareness to help others avoid similar blunders.

~†~ Baby Steps Are Key  ~†~ No one will care about your hard earned money as much as you do. That’s why it’s imperative to always have a solid understanding of the details on your investments and all the risks involved.

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Featured Resources

Compare prices and read helpful product reviews to make smart buying easy through Ciao! – Price Comparison and Product Reviews for the savvy shopper.

iGObanking 5.30% APY ($1 to open, no minimum, no fees, FDIC insured, compounded daily)

E*Trade 5.05% APY ($1 to open, no minimum, no fees, FDIC insured, compounded daily)

EmigrantDirect 5.05% APY ($1 to open, no minimum, no fees, FDIC insured, compounded daily)

HSBC Direct 5.05% APY ($1 to open, no minimum, no fees, FDIC insured, compounded monthly)

ING Direct 4.50 % APY ($1 to open, no minimum, no fees, FDIC insured, compounded monthly)

iGObanking still remains the top contender in terms of a low minimum of $1 to open, with no annual fees attached and an excellent high yield. I opened my first online savings account with iGObanking six months ago and have had a very positive experience overall. (You can click on these article titles to read more about my experiences with iGObanking.)

Battling Against the Risk of Inflation

All the above mentioned online accounts are attractive options for savings due to one inescapable factor eroding the value of our hard-earned dollar - inflation. US economic growth, on average, battles roughly a 3% inflation rate every year.

A wise investor knows they must seek out investments which will keep pace with continued inflation, or their money will lose essential purchasing power as the cost of living continues to increase.

If your savings are stashed at a traditional bank earning 1% APY or lower, the money is unfortunately losing value every year. And if your savings are tucked in an investment vehicle earning roughly 3% APY, you are just barely breaking even.

Consider this sobering example of inflation.

If $1 was invested in stocks at the end of 1925, your $1 initial investment would be worth $98.37 at the end of 1994, after inflation adjustment. However, if you had tucked that same $1 in your undies drawer instead of investing it, that $1 would be worth roughly 12 cents by 1994. (“A Guide to Growth Investing,” Ibbotson Associates, 1994 yearbook). 

Brett Machtig offers another example of the corrosive effects of inflation in his book Wealth In A Decade:

In 1965, on one of his annual trips to Las Vegas, a gambler named Jay won $25,000 after taxes at a casino. Just for reference, Jay could have purchased a modest home for that sum in 1965. Instead, he put the money in a safe deposit box, where it remains today. While the money has been gathering dust, the effect of inflation has made the money worth less than $7,000 in today’s dollars. If, on the other hand, he had invested the money in a tax deferred annuity at 8 percent, it would have been worth more than $270,000 by 1997  – ($76,000 adjusted for inflation) – about 11 times as much (assuming a 4 percent rate of inflation).

~†~ Baby Steps Are Key ~†~ When contemplating investment options, always consider the impact of inflation and the effects of your purchasing power over time

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Sayings of the Wise

“The wise man saves for the future, but the foolish man spends whatever he gets.” Proverbs 21:20

“Invest in inflation. It’s the only thing that’s going up.” Will Rogers

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iGObanking 5.30% APY ($1 to open, no minimum, no fees, FDIC insured, compounded daily)

Grandyielddirect 5.27% APY ($1 to open, no minimum fees, FDIC insured, compounded daily)

E*Trade 5.05% APY ($1 to open, no minimum, no fees, FDIC insured, compounded daily)

EmigrantDirect 5.05% APY ($1 to open, no minimum, no fees, FDIC insured, compounded daily)

HSBC Direct 5.05% APY ($1 to open, no minimum, no fees, FDIC insured, compounded monthly)

ING Direct 4.50 % APY ($1 to open, no minimum, no fees, FDIC insured, compounded monthly)

In the frenzied competition of online savings accounts, HSBC Direct is throwing a phenomenal limited time offer on savings accounts.  6.00% APY is now being offered to new customers on new money through April 30, 2007. Check out HSBC Direct.com for complete details.

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Another iGObanking Customer Service Experience

An opportunity once again presented itself for me to utilize iGObanking’s customer service.

I had transferred a small sliver of money from my checking account into my iGObanking savings account a week and a half ago. The transaction took around three business days to reach my iGObanking account. However when I logged into my account, it showed two different dollar amounts; my account balance and my available balance.

My account balance was much higher than the available balance and included the transferred funds. I couldn’t access the newly transferred funds yet though.

After a week had passed and the separate numbers persisted, I wondered how long it officially takes for newly transferred money to clear and completely merge into the available balance.

I set out to discover an answer and called iGObanking on Wednesday around 11:30ish in the afternoon. After roughly six minutes on hold, a female customer service representative answered. She had a thick accent and was a bit hard to understand at moments. I had to ask “Pardon?” and “Could you repeat that please?” a few times in order to make sure I understood all the information correctly.

She patiently and slowly explained that money transfers take roughly three to five business days to reach my savings account from an outside source. Once the transfer has arrived in my iGObanking savings account, interest begins to compound on the entire amount immediately.

However, it takes an additional three to five business days for the new amount to clear before it may technically be used.

If you’re looking to swap money around quickly from one source to another, be aware that it may take up to ten business days total for funds to become available – up to five business days for transfer completion and up to an additional five business days for the amount to properly clear once it reaches your iGObanking savings account.

I personally have no problem with this added time cushion on incoming funds since the intention of my savings account is for nest egg and emergency purposes only. The less liquid the funds, the less tempation I’ll have dipping into it for unnecessary expenses.

If you’re interested in additional information, you can nip around in my archives for all my past experiences with iGObanking. Simply click on a specific post title to bring up the entire article.

By automatically taking out at least 10% of my paycheck, so far my current savings have reached $350 (with the end goal being $1,000).

Slowly but surely getting there!

~†~ Baby Steps are Key ~†~

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iGObanking    5.30% APY ($1 to open, no minimum, no fees, FDIC insured, compounded daily)

Grandyielddirect 5.27% APY ($1 to open, no minimum fees, FDIC insured, compounded daily)

E*Trade    5.05% APY ($1 to open, no minimum, no fees, FDIC insured, compounded daily)

EmigrantDirect    5.05% APY ($1 to open, no minimum, no fees, FDIC insured, compounded daily)

HSBC Direct    5.05% APY ($1 to open, no minimum, no fees, FDIC insured, compounded monthly)

ING Direct    4.50 % APY ($1 to open, no minimum, no fees, FDIC insured, compounded monthly)

iGObanking Customer Service and Added Security Measures

Since opening an online savings account with iGObanking roughly a month ago, I have been very satisfied with their customer service. Last week I transferred a small amount from my local checking account into my iGObanking savings account. The transaction took approximately four business days, and I received two complimentary emails during the process to reassure me of the status on my pending transaction.

iGObanking automatically logs your IP while signing up. It asks if you’d like to set that particular computer as your ‘default’. This means if you log on from a different computer, the iGObanking online system will recognize the foreign IP and take security precautions by asking additional questions upon login.

I know many people who still feel wary of using online banking in general. I feel, therefore, this is actually a benefit for additional peace of mind.

Uhh, until I found myself locked out of the system – and my account.

I logged onto the iGObanking site from my work computer a few days ago. The system didn’t recognize the computer I was trying to access my account from. It prompted me to answer security questions I had been asked during the initial signup process (three in total). Except, bugger me if I couldn’t remember the answer of the last one. One time, failed, twice, three times … bam! I received a message that, after four unsuccessful login attempts, my account was now locked. I would need to contact a customer service representative to remedy the situation.

Grumbling, I tried to log in again from my home computer later in the day. After receiving the same message, I shrugged and figured it would be an ideal opportunity to test the quality of iGObanking’s customer service. I called the toll-free number on their website and patiently awaited the next available CR.

I was placed on hold for five minutes before receiving a very pleasant middle-aged woman, who allowed me to explain the entire situation. After I sheepishly told her I was locked out of my account after logging in from a work computer, but had forgotten one of my security questions, she chuckled and said it wasn’t an uncommon occurrence. She reassured me it would be easy as pie to fix. After asking my basic info (name, address, ss #, telephone) for verification purposes, my account was promptly unlocked. She gave me a new password and instructed me to wait five minutes, log in again, and reset my security questions.

A few minutes later, I had three new questions (with the answers committed firmly to memory this time!), and I was happily cruising through my online account again. Very simple, and very well-handled. The whole ordeal took less than ten minutes to fix, and I am extremely pleased with the quality of iGObanking’s courteous and efficient customer service.

iGObanking Customer Service Hours

If you experience problems or have questions with your iGObanking online savings account, a customer representative can be reached during regular business hours (Monday – Friday – 9:00 a.m. to 5:00 p.m. EST) at 1-888-432-5890. 

Read my experience on the process of opening an account with iGObanking.

Still unsure? Check out the advantages and disadvantages of online bank savings accounts.

~†~ Baby Steps are Key ~†~

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iGObanking    5.30% APY ($1 to open, no minimum, no fees, FDIC insured)

E*Trade    5.05% APY ($1 to open, no minimum, no fees, FDIC insured, compounded daily)

EmigrantDirect    5.05% APY ($1 to open, no minimum, no fees, FDIC insured, compounded daily)

HSBC Direct    5.05% APY ($1 to open, no minimum, no fees, FDIC insured, compounded monthly)

ING Direct    4.50 % APY ($1 to open, no minimum, no fees, FDIC insured, compounded monthly)

I highly recommend putting money you want to remain relatively liquid in an online savings account if you haven’t done so all ready. A huge incentive of online savings accounts are the competitive APY rates offered, as opposed to traditional savings accounts at physical banks. This equals a yummy, much higher interest rate for the customer. If you’re still feeling a bit reluctant or need further information, be sure to check out the advantages and disadvantages of having an online savings account.

My experience with iGObanking

iGObanking currently has one of the highest rates for online savings accounts with a low minimum of $1 to open. I initially signed up with iGObanking on December 18th. The application process was relatively quick and painless, and took roughly ten minutes to complete. If you’re interested in learning more about iGObanking, here is a quick rundown of what you’ll need to open an account with them.

• A social security or tax ID number

• Driver’s license or ID card issued by a state DMV

• Information on any loans or mortgages you currently have (they will ask a few random questions about these to help confirm your identity during the sign-up process)

• Your current bank account number and routing number for funding purposes

• For a joint account, the other individual’s personal information (Secondary Applicant’s name, social security or ID number, and their date of birth)

Once your application has been approved, you’ll have the option to immediately transfer funds from your current bank account(s) into your new iGObanking online savings account. However, I’d recommend only transfering a small portion (even if only the initial $1 minimum to open) because you won’t be able to access your account until they mail a password to your home. The letter arrived approximately a week after I completed the application process. I had put $50 in my account to start with, but it admittedly made me a little nervous when I realized I wasn’t able to access my account yet. Therefore, if you’re a neurotic worrier like me, it might be wiser just tossing $1-$5 into the account and waiting until the letter arrives with your password before transferring over the rest.

Once you receive your letter, you’ll be able to log into your online savings account and will be prompted to change both your user name and password to your own preference. Once you obtain full access to your new online savings account, you can then continue transferring the remainder of your funds into it.

Congratulations on opening your brand new online bank savings account! You’ve taken a wonderful first baby step in helping your money grow and work properly for you. If you haven’t all ready, acquaint yourself with the beauty of compound interest. Now you can focus on building a comfy nest egg for yourself while funneling your savings into your new high APY online savings account.

A good rule of thumb is to count up your total bills and expenses for one month, and then concentrate on saving at least four to six months worth of expenses in case of an emergency. If you’re heavily in debt or a broke-ass student like me, try to save at least $500 to $1,000 in an online savings account for yourself before focusing on aggressively tackling your debt.

So, no more excuses! Today is the day to get started, as in, right now. Welcome to taking a simple yet positive approach towards building a brighter financial future.

~†~ Baby Steps are Key ~†~

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Here’s a look at some nifty Online Savings Accounts and their Current Rates as of December 10, 2006

iGObanking    5.30% APY ($1 to open, no minimum, no fees, FDIC insured, compounded daily)

E*Trade    5.05% APY ($1 to open, no minimum, no fees, FDIC insured, compounded daily)

EmigrantDirect    5.05% APY ($1 to open, no minimum, no fees, FDIC insured, compounded daily)

HSBC Direct    5.05% APY ($1 to open, no minimum, no fees, FDIC insured, compounded monthly)

ING Direct    4.50 % APY ($1 to open, no minimum, no fees, FDIC insured, compounded monthly)

Online Bank Savings Account

Does the thought of online banking make you a wee bit squeamish? So why is everyone raving about online savings accounts?

Here are some of the Advantages of Online Savings Accounts you’ll want to consider and be aware of while considering whether an online account is the right decision for you.

• Ridiculously high APY compared to traditional physical banks. Traditional banks have 2% or lower APY, as compared to online banks with 4.5% and higher. Because they exist solely in cyber space, they can forego the expensive overhead of buildings and tellers. Your Annual Percentage Yield (APY) is the interest earned in one year, taking into account the effect of compounding interest.

• The convenience to bank anytime you want, 24 hours a day, even in your jammies. Just click your mouse and you’re ready to roll.

• The ability to bank anywhere in the world, as long as you have access to the internet.

• FDIC Insured. The online banks listed above are all insured by the Federal Deposit Insurance Corporation. This means your bank deposits are insured by the federal corporation up to $100,000 per Social Security number. This is important because not all banks or account types are insured. When you start investing later in life, you’ll be taking much more risk with your assets. But for now, this is a very safe place to put money you absolutely don’t want to lose.

Some Disadvantages of Online Savings Accounts to help weigh your decision further:

• Not as immediate as traditional savings account. I personally see that as a huge incentive not to be so eager to touch money but hey, some peeps may view that as a disadvantage. Expect an average of three to five business days between transactions.

• Switching banks may be more cumbersome. Research carefully the Terms of Service for each account, and be on the lookout for penalties which may accrue should you decide to close the account out before a certain time frame has expired.

• Lack of ATMs. You’ll need to either mail your checks or transfer your funds from another account into your online account.

• Lack of tellers. You’re more at the mercy of an 800 number when you lack the convenience of talking with someone in person. If a problem arises, it’s a gamble. You could either receive friendly and knowledgeable help, or really crappy customer service.

• Technical difficulties. Since there’s no physical branch to visit, always keep an alternative stash of money handy somewhere in case the website temporarily goes down.

With all that said, I still feel an online savings account is the best option for my small emergency savings. I need the money fairly liquid because my goal is to first and foremost eliminate my car loan debt. But since I’ve established a small safety cushion to fall back on in case of an emergency, an online savings account seems like the perfect place to get the most bling for my buck right now.

With all this money zipping through cyberspace, the options can be confusing.  iGObanking is currently on top with the highest rate, but that will fluctuate over the coming weeks. I’m leaning strongly on EmigrantDirect. If anyone has experience with iGObanking, let’s here it.

Looks like it’s time to get off my tushie and get started!

~†~ Baby Steps are Key ~†~ Online savings accounts can help stretch your dollars further

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I’m about to head out and help my family with their dinner preparations, but I thought I would leave this pondering thought with you all.

Baby Step #3 - Receiving grants are a great way to start the holiday!

My university grants for this semester have finally arrived in the mail.

There is nothing quite as liberating as holding a nice juicy check and realizing all my hard work studying is being honored. In the past, I may have run out to the nearest mall for a deliciously naughty spending binge. But oh no, as the year draws closer to an end, I’ve become more determined than ever to force away my old habits and begin with a fresh perspective. So, much to the dismay of my friends and family, I have suppressed the temptation to spend all of my money as soon as I’ve finished shredding open the envelope. My checks, I must admit, patiently sat on my counter and have just been deposited into my checking account today.

The question is, now what?

I’ve recently started researching into the perks and drawbacks of various online banking options. One of the most attractive features of an online savings account is the highly competitive Annual Percentage Yields (APY). As an investor, APY is one of the core ways to nurture money to allow it to flourish and grow. APY is how much money my investment (in this case, my deposit) will earn me over the course of a year on interest. I’ll be writing more in depth later on the difference between simple interest and compound interest, and the incredible beauty of compound interest as it builds over time. (Update 12/18/06: Here’s the article on Compound Interest).

If anyone has experience with online banking, I’d love to hear more about it.

I’d also like to throw this engaging article out there from USAToday, about the immense debt young people are coping with today. It illustrates the struggles of our generation as we juggle personal and educational debt with trying to build a secure financial platform for our future. Does anyone else feel as if they’re running in a big ol’ hamster wheel?

Right now I’m going to finish helping my family with their Turkey day planning. Although I’ve decided to forgo the turkey this year, an endless supply of bean casserole, sweet potatoes with apples and walnuts, veggie stuffing, acorn squash, cranberry salsa, whole wheat maple rolls, and delicious pumpkin pie is sure to keep me stuffed.

I hope everyone has a lovely holiday!
~†~ Baby Steps are Key ~†~

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