Is Your Bank Returning The Favor?


Note: This post was updated on October 21st, 2020, to reflect recent changes in interest rates.

Banks make money in a few different ways. One of them is by charging you interest or fees for the services they provide. Another major way banks make money is from YOUR money.

In other words, when you deposit money in a bank, the money doesn’t just sit there. It gets pooled with other deposits from millions of customers and is sent to work!

The money is invested in different things and generates billions of dollars for the bank. In return for “holding” your money, most brick and mortar banks will pay you a few pennies.

You Vs The Bank

Back in the days when I started my very first job out of college, I needed a bank for direct deposit and where I could start saving some money.

The first bank I signed up for to deposit my hard-earned money was paying about 0.01% interest in savings. Note that this is standard (even to this day!) for many brick and mortar banks. 

I didn’t have a choice back in those days and had to go with it.

Here’s a simplified example of what it meant to get 0.01% interest on savings:

Let’s say I saved about $150 per month during one year for a total of $1,800.

By the end of the year, the bank paid me about $0.98 in interest in return for “holding” my money. Yup. You read that right. 98 cents. 

That means I’d end up with $1,800.98 in my bank account by the end of the year. Remember, the bank is making billions in the back end – for themselves.

Thankfully, I eventually learned to invest so that my money could work a lot harder (and more efficiently) for me.

Also, thankfully, online banks started emerging, offering interest rates significantly higher than the typical brick and mortar bank.

This meant I could now transfer my emergency fund (or any money I did not plan to invest) to an institution that respected me enough to pay me more than pennies.

SAVING MONEYPhoto credit: @yaryincharge

Interest rates offered by banks have decreased significantly across the board as a result of actions from the federal reserve.

However, online banks still offer rates significantly higher than the mediocre 0.01%.

Make sure you aren’t leaving money on the table by keeping your savings in a bank that uses your money to make millions but isn’t returning the favor.

I understand banks have a lot of expenses, and their duty is to keep our money safe. However, paying pennies to their customers is just plain disrespect.

And if you’re wondering – The reason why Online Banks can pay interest rates that are higher than the norm is that they don’t have overhead expenses. All the work is done electronically, and they can afford to return the bulk of the money they are saving back to the customer. 

When it comes to your emergency fund and your savings, I encourage you to have that money growing for you at an online bank.

Here are a couple of my personal favorites:

#1 CIT Bank (*not associated with Citibank).

CIT Bank Money Market Account pays 0.55% APY

#2 Marcus by Goldman Sachs:

High yield savings account currently pays 0.60% APY

*Rates above are effective 10/22/2020.

Remember this: The higher the APY a bank offers you, the more money you receive in interest as the year goes by. Your money will grow faster and a lot more efficiently in comparison to just getting pennies. 

You just need to make sure that the bank you select is a regulated, reputable, highly-rated bank such as the ones I outlined above.

If you aren’t ready to invest just yet and are in the process of building your emergency fund, I HIGHLY encourage you to save your money in a way that allows it to work hard for you. 

If you aren’t ready to invest just yet and are in the process of building your emergency fund, I HIGHLY encourage you to save your money in a way that allows it to work hard for you. 

Tell me – how do YOU feel about online banking? Do you currently have an emergency fund?

Cheers to Health & Wealth!



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Upcoming Courses & Resources:

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5 thoughts on “Is Your Bank Returning The Favor?

    1. Girl$ on The Money

      I see your point but don’t see it as a “new” problem at all. To be honest, anything that can possibly happen to an online bank, can happen to a regular brick and mortar bank! Any kind of business can be in danger of security issues. What can give us peace of mind with banks is that most (if not all) are FDIC insured. And so, our money is protected up to $250,000 per financial institution:

    1. Girl$ on The Money

      I agree! Very strange how most banks get away with that. I think they use certain tactics to attract customers such as “convenience” (having branches everywhere) or other methods so that most people don’t realize what these banks are “really” doing behind the scenes. Hence, why I am a fan of online banking!

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