Get a better savings account
Most people are losing a significant amount of money each year by having an inferior savings account. In fact, if you aren't earning more than inflation, then you're actually losing money. The average inflation rate in 2007 was almost 3%, meaning that you had to earn at least 3% interest on all your money just to keep its value the same.
APY interest
If you have a savings account, you should know how much interest your savings account is accruing. APY is a measure of the amount of interest gained over a year period. Many traditional banks that offer savings account have a laughable APY on their savings accounts. For example, Chase Bank is currently offering a generous 0.3% APY on their basic savings account. In contrast, online banks are currently offering about 4% to 4.5% of APY interest. Over time, such a difference is extremely significant!
How much are you losing?
If your money isn't in a high-interest savings account, you're actually LOSING money. In the image below, I have graphed how a poor APY can affect a $1000 savings account. If you refer to the graph below, you'll note that a traditional savings account, which makes 0.3% APY (meaning 0.3% interest per year), actually loses money if you take inflation (3%) into account. Conversely, a high-interest online savings account will actually work for you and make money, even when you consider the impact of inflation. The take home message is that your money must make at least 3% yearly interest just to keeps its own value.
High-interest savings accounts
My personal favorite high-interest savings account bank is ING Direct's "Orange Savings" account. There is no minimum, no fees, and its online interface is extremely easy to use. On top of an amazing interest rate (currently 4.1% APY), you can support celtickane.com by signing up via one of my ING Direct referral links -- if you open an account with at least $250, ING Direct will give you $25 and give me $10. If you would prefer to sign up without a $25 bonus, you can sign up without being referred through this site by going directly to ING's Orange Savings page.
There are a handful of other high-interest savings accounts online, but I honestly have no experience with them. I would like to encourage you to examine these online banks that offer comparable APY interest rates:
Regardless of what online bank you decide to use, you should make sure that your selected bank is FDIC insured. If a bank is FDIC insured, they will state so on their website. FDIC is important because it means that the federal government will reimburse you (up to $100,000) if the FDIC-insured bank goes bankrupt and can't give you your money back.
"I don't want to give up my checking account"
You don't have to! In fact, my personal strategy is to keep some money in an accessible checking account (which has ATM, checks, and a local bank for deposits), but each month I put any excess money into my ING account. Although I don't get a high interest rate on my checking account, the convenience of a local bank is worth it.
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