The traditional bank depositor has both a savings and checking account.Â The checking account provides the depositor with liquidity – a means to pay bills and withdraw cash whenÂ needed.Â TheÂ savings accountÂ typically provides a much higherÂ rateÂ of interest.Â But what if you could combine the two andÂ harness the advantages of both?
How to Implement
What you need is an online bank that offers tiered interest checking.Â A good example is ING Direct.Â The interestÂ rateÂ for their basic online savings account isÂ currently 1.85% APY.Â However, theÂ interest rate for the highest tier of their Electric Orange online checking account is 1.95% APY.Â Therefore, if you have the means, you are automatically incentized to maximize the balance of your checking account.Â So put $1 inÂ your ING savings account and everything else in your Electric Orange.
Now that your savings and checking accounts are essentially congruous, you never have to worry again about overdraft fees.Â BecauseÂ you have allÂ of yourÂ money in one place,Â you can always rest easy in being able to fulfill the transfersÂ you authorize.Â By using this setup, you can just imagine the hundreds of “transferÂ $$$ amount from savings to checking” transactions that have beenÂ eliminated.
By not having to move your money from account to account, you are essentially permitted to leave all your money in the highest interest account at all times.Â It’s onlyÂ a couple of days of additionalÂ interest, but over-time, this “micro-interest” can add up.Â Â And let’s notÂ forget the magic of compounding.Â 🙂
This only works if you have the highest tier of interestÂ for a tieredÂ online checking account.Â (Basically, you need to deposit a ton of cash) Â Additionally, while Electric Orange is probably still the best option for this strategy,Â it should be noted thatÂ the current interest rate for their highest (1.95% APY)Â is stillÂ lower than the interest rateÂ offered by theÂ First National Bank of OmahaÂ savings account (2.40% APY).