A checking account with interest means effortless money
The interest rate you'll get on a checking account will be minuscule 鈥� sometimes under 1 percent. But it's money that you'l have to do nothing to earn.
The interest rate you'll get on a checking account will be minuscule 鈥� sometimes under 1 percent. But it's money that you'l have to do nothing to earn.
Interest rates are a funny thing. While interest is always a good thing to earn, predicting the exact rate you鈥檒l get is far from an exact science.
When I first wrote听365 Ways to Live Cheap听in 2007 and early 2008, many checking accounts 鈥� even entry-level ones 鈥� offered interest. I myself had a checking account that received something around 1.5% interest at the time.
As the book went to press, interest rates were dropping and checking accounts were the first to really see interest rate drops. I discussed the issue with my editor and we made the decision to suggest looking for a 1% interest rate, as it had been easy to find such accounts for听years.
Today, a 1% interest rate on a checking account is a pretty good deal. They can be found, but they鈥檙e often available from local banks and are prone to change. In fact, I鈥檇 suggest that听a 0.5% interest rate on a checking account, given the current state of interest rates, is something to be happy with.
Why is that so important?
Well, let鈥檚 say you maintain an average balance of $2,000 in your checking account throughout the year. Just for keeping that account open, the bank听gives听you $10 over the course of the year. You don鈥檛 have to do anything to get that ten dollars. Just keep your account open with that average balance and you鈥檙e good.
Now, that seems like a relatively small amount, but the key thing is that听you don鈥檛 have to do anything to collect it.听If you choose a bank that offers some form of interest checking, you鈥檒l simply get the money slowly throughout the year simply for having the account open.
Interest on a checking account is a perfect example of what I think of as 鈥�effortless money.鈥� It鈥檚 one of those things that, once you鈥檝e made an initial decision or take an initial action, it continues to either earn you money or save you money in the future.
For example, if you air seal your home once, you鈥檒l have a smaller energy bill thereafter. Set up your programmable thermostat to cause your furnace or air conditioning to shut off during your workday and at night and you鈥檒l always spend less on energy.
The same is true for interest on an account you naturally use. It鈥檚 just money that you get without effort, and that鈥檚 the best kind of money.
That鈥檚 not to say, of course, that it鈥檚 the only factor to consider when choosing a bank. It鈥檚 one of many, like the ATM network (discussed yesterday) and other factors we鈥檒l discuss in the next few days.
This post is part of a yearlong series called 鈥�365 Ways to Live Cheap (Revisited),鈥� in which I鈥檓 revisiting the entries from my book 鈥�365 Ways to Live Cheap,鈥� which is available听at Amazon听and at bookstores everywhere.
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