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Best savings account for 2016

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This week, I’m sharing my favorite accounts with you.

In my last note, I talked about why American Express Starwood card is the best all-around credit card and the one I personally use.

Today, I want to talk about another crucial piece of your personal finance system: your savings account.

Savings accounts really matter because they’re where you save for mid-term and long-term goals: your wedding, house/car down payment, vacation fund, etc.

Instead of intermingling these funds with general spending money in your checking account (where it inevitably gets spent) it’s psychologically important to set mid-term money aside in its own, separate savings account.

But beware the big banks. Extortionate fees and terrible customer service make them a bad deal for most people. As I write in chapter two of my book:

“I would not encourage anyone to use a standard Big Bank savings account. Online savings accounts let you earn dramatically more interest with lower hassle. And because you’ll primarily be sending money there, not withdrawing it, what does it matter if it takes three days to get your money?”

There are plenty of good online savings accounts to choose from, but after evaluating many options, here is…

The best savings account is…

I use Capital One 360 (formerly ING Direct).

This is the account I recommended in my book, and it’s still the account I use today, years later.

Here’s why.

The psychology of sub-savings accounts

I mentioned how psychologically important it is to have sub-savings accounts, rather than one lump “savings” area.

Check out my actual sub-savings accounts:

You see why this matters?

If your friends call you up and say “Hey dude, let’s roll to Vegas this weekend,” you’re not going to be like, “Hang on guys…let me initiate a transfer from my ‘down payment’ sub-savings account, which should take 24-48 hours.”

You could…but you won’t.

This is a GOOD THING.

Using your automated personal finance system, I use monthly automatic transfers to funnel money into each of my sub-accounts. Now that these transfers are in place, I’m getting closer to each of my goals automatically, month after month, without having to remember to set money aside.

This is precisely how people get rich automatically. Because when you don’t see the money — when it’s automatically withdrawn from your checking account and shunted to specific savings goals — you will never miss it. However, a few months later, you’ll be amazed at how fast you’re accomplishing your goals.

By the way, it’s possible to simulate sub-savings accounts with any savings account (for example, by manually creating your own “subaccounts” in Excel.) But I like Capital One 360 because it just does it for me. Why give yourself another financial chore to think about? I cover the use of sub-savings accounts in more detail in my blog post Using Sub-Savings Accounts For Unexpected Expenses. It’s an incredibly powerful way to make your savings more streamlined and purposeful.

Other benefits of the Capital One savings account

  • No fees, no minimums
  • Good interest rate (see below)
  • You can do everything online in an ultra-simple interface
  • No annoying upsells sent via postal mail = paper cuts
  • Links to your checking account (even if not in ING) via electronic transfer

One thing about the interest rates these banks pay. A lot of people ask about the 4-5% interest rate that ING and other high-interest banks used to pay, which I quoted in my book. Unfortunately, those interest rates are variable, meaning they change with the economy. Do NOT waste your time chasing rates. A 1% difference on a balance of $10,000 is $8.33/month, hardly worth your time.

Let me say it again. DO NOT BE A STUPID RATE CHASER. If you write me and say, “But Ramit, XYZ bank has 0.2364% higher interest rate. LOL! U R WRONG!” I am going to (1) mock you, (2) unsubscribe you, and (3) hate you.

Find a bank you trust, stick with it, and get on with your life.

NEXT STEPS: Open a savings account

To open up a Capital One 360 savings account today, click here.

By the way, if you’re wondering if I still endorse this account, click here to see my thoughts on the ING-to-Capital-One transition.

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  1. Have to second the recommendation for ING Direct; I love them.

    But, Ramit, I thought you had said in the past that you weren’t planning on buying a home in the foreseeable future. Have your plans changed, if you are now saving for a down payment?

  2. ING is up for sale, at least their banking division in the US. Not knowing who will end up with the ING assets, I moved over to Ally. I was very happy though with ING while I was there. Please post a follow up if you find a different savings bank that you like.

    • I’m utterly mystified by how many people are worried about ING selling. I have gotten 20+ emails in the last 2 days about this, asking what they should do, where should they switch to, etc.

      A sale doesn’t necessarily mean something bad is going to happen. Why not wait and see?

    • It is not really a concern about ING going away as much as which companies may be taking over. GE and Citi are 2 companies I would rather not deal with if possible.

    • Wouldn’t the deposits still be FDIC insured? If so, why should I worry? There’s no indication as yet that ING’s policies will change if they are bought out.

    • Yes, they are FDIC insured. It is that I don’t want to deal with the companies that are possibly buying ING. Instead of waiting to see, I just proactively switched. I was more curious as to Ramit’s thoughts. It really doesn’t matter though in general, as long as you are saving and it is FDIC insured. It is whatever works for you as an individual.

    • The point is that it’s not worth switching to ING if the transactions costs of opening/closing accounts are high for you. It’s kind of like purposely not automating something.

      One of the companies that is rumored to be “far along” in takeover negotiations with ING is not as friendly (Ally, formerly GMAC). There’s no reason to expect them to maintain the same or provide better terms. It’s probably better for people to switch to a bank that is maybe not as good as ING but will probably be around for longer.

    • I had a flashback this morning–when ING took over NetBank (where I had opened some accounts in 1998), ING did away with some of NetBank’s sweetest perks, like free overdraft on linked accounts. Bank takeovers usually don’t benefit the customers directly.

  3. Hey Ramit,

    This is great an all for you American People.

    But How about us Canadians?

    Yes, we have ING Direct Canada, so the Savings Account is good.

    But How about the credit card and the chequing account?

  4. Ramit,

    I have an ING account (with sub accounts) and I love it. I have one question though: Do you know of a way to set up one transfer from a checking account to the ING savings account and have it distribute that deposit across all the sub accounts by a percentage? Right now, I’ve been transferring money from checking to savings and then manually distributing the money to the sub accounts. I’d love to have this done for me automagically so there’s even less to think about.

    Thanks for your help and your wonderful blog!

    • You can set up automatic bi/weekly/monthly transfers of a set amount to each individual sub-account. This is what I do. If you wanted to put in a variable amount each week, then I wouldn’t know how to do that or if it’s even possible.

    • Look for “Automatic Savings Plan” under the My Accounts tab.

    • Don’t be confused by Ramit’s use of the term “sub-account” like I was. They are not sub-accounts – they are independent accounts with different account numbers. If you transfer to the “main” account and then distribute to the other accounts, you may well run afowl of the 6 withdrawals a month limitation. I used to think the way you are and got a nasty-gram from ING – if I did it again they’d be required by law to terminate my accounts. A phone call with customer service corrected my thinking and I rearranged the withdrawals/transfers from my checking account so that the amount I wanted to transfer goes directly into each of the savings accounts. So, every 2 weeks, ING does 3 withdrawals from my BOA checking account and puts it into the 3 separate savings accounts.

    • Thank you everyone for the assistance.

      BarbaraB was right. I was thinking that I could transfer one lump sum to ING from BOA and then distribute it to the sub accounts. I will instead setup individual transfers from BOA to each individual sub account for my savings plans. Thanks everybody!

  5. I am also a big fan of ING Savings account which I have been using for a coupleo of years now. Another advantage of ING savings is that you can see your investment account such as IRA at the same time. It makes it easier to automatically invest from your account.

  6. I do agree, we certainly aren’t stashing money away in savings accounts to get rich off of the interest rates… a quarter of a percent ain’t gonna do much for you! I like automating finances, to a degree. I wrote an article on this not long ago, laying out the different aspects of my financial web that I like to automate, and those that I do not. I have been burned by phone companies and credit card companies more than once, which gives me a little hesitation when automating those types of bills.

  7. Ramit,

    I’m reading your book right now and enjoying it. I’m on the chapter on starting a 401(k) and a Roth IRA. As far as a savings account goes, I have a Bank of America Savings Account. I put 10% of my bi-weekly paycheck into the savings account which amounts to about $150 every two weeks. I would love to subdivide my savings as you discuss, but with only $300/month, it seems like it will be difficult to put considerable amounts of money in each subcategory. What do you suggest?

    Putting 10% away and planning to start putting another 5% into a Roth means it may be tough to save more at this time in my life.

  8. Been using the ING Orange account for more than a year now. It’s pretty fantastic. Our savings automation is going very well. Thanks for the great ideas Ramit!

  9. Ramit,

    What about ?

    It has all of the benefits you listed, a higher interest rate, AND is more designed to push you to your financial goals goals rather than being a general savings account.

  10. I second Jimmys question.

    I’ve been using smartypig for awhile. They were taken over by compass bank a while back but they’re options for using the money you save is impressive. You can get cards to a wide variety of companies and they’ll even add on a certain percentage [usually around 4%]. So for example, if you have a savings goal for a trip, you can choose to cash out with a travelocity card and they add another 7%. Or you can choose half on a card half cash. its pretty good if you have very specific goals [trips, furniture, food]. Also links to your checking, you can set up bi-monthly or monthly transfers etc. Interest is compounded daily, paid quarterly.