APY = Annual Percentage Yield
After the 2008 financial crisis many of us lost faith in traditional banks. High fees, high penalties, minuscule interest rates on our savings. Enter the internet. The rise of online banking has changed the game. Capitalizing where traditional banks have let us down. Without the overhead of brick and mortar locations, online banks can offer better rates and lower fees. Listed are some banks, online banks, and prepaid accounts that all have interest rates of around 5%. Bank of America's Platinum Honors rewards - their highest tier program - only offers 0.06%. Wells Fargo only offers 0.05%, and Chase will only give you 0.01%. Each bank has it's on stipulations, but with %5 interest versus 0.01% is significant, especially for passive money.
Northpointe Bank's Ultimate Checking Account is a really cool program. As long as you use your debit card at least 15 time a month between online or in-store, enroll in their eStatements program, and set up for direct deposit, you'll be set for 5% APY on balances up to $10,000.00. Balances larger than $10,000.00 will earn a simple interest rate of 0.10% with a corresponding APY of 2.54%-5.00% APY. What's also cool about Northpointe is that every month they will reimburse up to $10 in ATM fees. Learn More here.
Netspend is the leader in prepaid cards. While you have to go in-store to load cash, Netspend all offers direct deposit as well. And the offer 5% interest on balances up to $1,000.00. There's no minimum deposit to start or minimum account balance required, and when the balance exceeds $1,000.00 interest will be 0.49% with an APY of 0.50%, and the interest paid on the portion of the Average Daily Balance which is $1,000.00 or less will be 4.91%. The APY for this tier will range from 5.00% to 0.54%, depending on the balance your the account. You can learn more here.
Mango's slogan is "it's prepaid made perfect". With a net direct deposit of at least $800.00 monthly and a minimum end of the month balance of $1.00 is all that is needed to qualify for 6.00% APR. On balances above $5,000, they offer 0.10%. They also offer a fall-backAPR of 2.00% for if your account does not meet the minimum $800 dollar net direct deposit threshold. Learn more about Mango here.
Powered by Paypal. This card is backed by Netspend and works under all the same parameters, including the 5% APY. What makes this card special however is how seamlessly it syncs with you Paypal account. You can instantly transfer funds from your paypal account, stash them in your savings and start earning some high yield interest. Learn more here.
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When you take out a loan for a car, charge something to your credit card, or get a personal line of credit, there is going to be an interest rate that applies to your loan.
A lot of different factors go into what you will be charged, including your own personal credit score. But even those with flawless credit still see a minimum charge that they can't get around. That all goes back to the Federal Funds Rate.
One thing consumers rarely realize is that all of our banks are lending money to each other every night. Banks are legally required to maintain a certain percentage of their deposits in non-interest-bearing accounts at the Federal Reserve to ensure they have enough money to cover any withdrawals that may unexpectedly come up. However, deposits can fluctuate and it's very common for some banks to exceed the requirement on certain days while some fall short. In cases like this, banks actually lend each other money to ensure they meet the minimum balance. It's a bit hard to imagine these multibillion-dollar financial institutions needing to borrow money to tide them over for a bit, but it happens every single night at the Federal Reserve. It's also a nice deal for those with balances above the reserve balance requirement to earn a bit of money with cash that would normally just be sitting there.
The Federal Reserve
The exact interest rate the banks will charge each other is a matter of negotiation between them, but the Federal Open Market Committee (FOMC) (the arm of the Federal Reserve that sets monetary policy) meets eight times a year to set a target rate. They evaluate a multitude of economic indicators including unemployment, inflation, and consumer confidence to decide the best rate to keep the country in business. The weighted average of all interest rates across these interbank loans is the effective federal funds rate.
This rate has a huge impact on the economy overall as well as your personal finances. The federal funds rate is essentially the cheapest money available to a bank and that feeds into all of the other loans they make. Banks will add a slight upcharge to the rate set by the Fed to determine what is the lowest interest that they will announce for their most creditworthy customers, also known as the prime rate. If you have a variable interest rate loan (very common with credit cards and some student loans), it's likely that the interest rate you pay is a set percentage on top of that prime rate that your lender is paying. That's why in times of low interest rates (it was set at 0% during the Great Recession), a lot of borrowers should go for fixed interest rate loans that won't increase. However, if the federal funds rate was relatively high (it went up to 20% in the early 1980's), a variable interest rate loan may be a better decision as you would be charged less interest should the rate drop without the need to refinance.
The federal funds rate also has a major impact on your investment portfolio. The stock market reacts very strongly to any changes in interest rates from the Federal Reserve, as a lower rate makes it cheaper for companies to borrow and reinvest while a higher rate may restrict capital and slow short-term growth. If you have a significant portion of your investments in equities, a small change in the federal funds rate can have a large impact on your net worth.
Whether you're leaving a job involuntarily, departing for something new, or just want to prepare for the unknown, it is smart to understand all your options regarding your 401k.
Frugal gifting often gets a bad reputation. However, this shopping method does not make you cheap — it makes you practical. Frugal gifts often avoid waste and overspending and can be just as meaningful (if not more so) as any other present.
With the National Retail Federation predicting each consumer this holiday season to spend upwards of $1,000 on holiday gifts amidst an economic recession —this year might be the perfect time to reconsider your spending budget. We've formulated the ultimate list of frugal gift-giving ideas to get you started.