If you’re a reader of mine, you most likely have a bank account. If this is the first article of mine you’ve read, it’s still very likely that you have a bank account. There’s this other side of banking that people usually don’t notice unless they’ve explored their bank’s website. They see all of these other types of accounts and services, but they’re too confused to go exploring it. Let’s clear up that confusion. You might actually find that some of these accounts are much better to have than a regular savings account.
Beef Up Your Savings Account
There are many products involved with saving money. Most people have heard of a CD (Certificate of Deposit), which usually requires a lot of money for a very small amount of interest to earn. However, there’s another kind of savings account that even allows you to write checks for it on a limited basis. This is called a Money Market Account (MMA). These accounts have higher interest rates than a regular savings account and are often used by investors as a safe haven when the market gets too uncertain or if an investor feels like they need a little time to rethink their strategy. Many banks, online and established branches, offer this kind of account. One reason why people tend to avoid these accounts is because they don’t have some extra money required for the minimum deposit.
A nice, lesser known savings account is actually one that is offered by a bank, not the industry. Barclays has what they call a Dream Account, which is originally intended for saving money for your “dream,” whatever it may be. Bottom line, it’s intended for long-term savings. The best part about it, honestly, isn’t the 1.05 percent APY on it. The best part, in my opinion, is the perks that revolve around the consistency of your deposits.
If you make monthly contributions of $1,000 or less for six months, you get a 2.5 percent bonus on the interest earned over the past six months. If in that same time you make no withdrawals, you get an additional 2.5 percent bonus on that interest earned in those six months. What exactly does this look like?
Breaking Down the Dream Account
APY means Annual Percentage Yield, which indicates that an interest rate is over 12 months, not monthly. Because of this, the 1.05 percent is divided by 12 (because there are 12 months in one year). This results in your monthly interest rate of 0.0875 percent. Before you get too angry about that, that’s much better than a regular bank account’s annual interest rate, which is often 0.01 to 0.05 percent APY. Let’s say that you have about $1,000 in savings and can contribute $500 per month consistently.
Here’s what the first six months would look like.
- Month 1: $1,000 + 500 + 0.0875% = $1,501.31 ($1.31 interest)
- Month 2: $1,501.31 + 500 + 0.0875% = $2,003.06 ($1.75 interest)
- Month 3: $2,003.06 + 500 + 0.0875% = $2,505.25 ($2.19 interest)
- Month 4: $2,505.25 + 500 + 0.0875% = $3,007.88 ($2.63 interest)
- Month 5: $3,007.88 + 500 + 0.0875% = $3,510.95 ($3.07 interest)
- Month 6: $3,510.95 + 500 + 0.0875% = $4,014.46 ($3.51 interest)
It’s true that $3,000 of this increase is your own money. After all, the point is for you to save money. Still, it’s nice to see your balance climb up to more than $4,000. Now let’s look at the bonuses they offer: 2.5 percent on the interest earned for consistent deposits and 2.5 percent on the same interest if you made no withdrawals.
Total interest over the past six months = $14.46
2.5% bonus for consistency = $0.36
2.5% bonus for no withdrawals = $0.36
Total interest plus bonus = $15.18
Dream Account balance = $4,015.18
This may feel a little inconsequential. But if you did this for 10 years and wound up having $60,000 in your account, 0.0875 percent goes from $1.31 in the beginning to $52.50 ten years later. Sure, ten years is a long time. But here’s what it looks like with a higher balance over six months with $1,000 contributions.
- Month 1: $60,000 + $1,000 + 0.0875% = $61,053.37 ($53.37 interest)
- Month 2: $61,053.37 + $1,000 + 0.875% = $62,107.67 ($54.30 interest)
- Month 3: $62,107.67 + $1,000 + 0.0875% = $63,162.89 ($55.22 interest)
- Month 4: $63,162.89 + $1,000 + 0.0875% = $64,219.03 ($56.14 interest)
- Month 5: $64,219.03 + $1,000 + 0.0875% = $65,276.10 ($57.07 interest)
- Month 6: $65,276.10 + $1,000 + 0.0875% = $66,334.09 ($57.99 interest)
Total interest over the past six months = $334.09
2.5% bonus for consistency = $8.35
2.5% bonus for no withdrawals = $8.35
Total interest plus bonus = $350.79
Dream Account balance = $66,350.79
Do Some Shopping
It’s important to do some shopping when it comes to your bank accounts. Especially when you venture outside of the regular world of banking that most people see. You should figure out whether or not the Dream Account or any other savings account is right for you. The thing to remember is that as long as the account is insured by the FDIC, you’re good to go. Check for hidden fees or hidden minimums. Feel free to call up the banks and ask do your own interrogation. They want your business, so don’t feel like any question is either dumb or too much to ask.
Online only banks usually have better interest rates to begin with. But you should definitely check out an MMA at your current bank or credit union first. Another great place to seek out one of these accounts is with your creditor. Just remember: Saving money is important as ever these days. You don’t want to have to touch it. But if you ever need it, it’s nice to have that safety net.