My favorite savings account

46 Comments

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 savings account I recommend

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 Because when you don’t see the money — when it’s automatically withdrawn from your checking account and shunted to specific savings goals — you will never miss it.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 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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46 Comments

 
  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 SmartyPig.com ?

    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.

  11. Do you think this may have a negative impact on this account?

    “Capital One Wins ING Direct USA ”
    http://online.wsj.com/article/SB10001424052702304186404576389710699747604.html

  12. Does all this apply to your business finances too? Same CC, Savings & Checking?

  13. I’ve been with ING for over 6 years now and always been quite happy with them, decreasing interest rates notwithstanding. Can’t say that I am thrilled with the idea of Capital One taking over, but I’ll wait to see how things develop before making any further decisions.

  14. I have been using a service called Smarty Pig which is similar to ING, and offers the same ways to subdivide savings accounts with goals. Plus they have a refillable rewards card. I think it’s a solid alternative. One thing is that it’s somewhat difficult to actually get money out without transferring the entire amount saved in a goal.

  15. A minor rant, but taking a wait-and-see approach:

    There are 2 companies that, 10 years ago, I swore not to do business with: Chase, and Capital One. Note: BofA wasn’t as bad in 2000 as it’s been in recent years.

    Since then, Chase has bought 2 of my credit cards, closed 2 of those, and consolidated the credit into one card. They killed my credit history (and credit score) in the process. They also bought my savings and checking accounts through Washington Mutual. Since then, however, I have not had a single problem with them, and I actually like Chase.

    Capital One has always been on my dislike list for their exorbitant credit rates and obnoxious commercials. The bums in my town started yelling at people “What’s in your wallet?!” Well, as luck has it, they bought out my other credit card company. In 2008, as the recession flag began to wave, they cut my credit limit and jacked up my interest. I decided, to hell with them, and I closed my account with them. I didn’t want to run the risk of them screwing me over at some later date when I actually want to make a large purchase and need to depend on my good credit for attractive rates. I’ve never looked back since.

    Here, now Capital One has bought the US banking segment of ING. I have no doubt that they’ll cut the interest rates and probably require a minimum balance on new accounts, but I speculate. Like I said, I’m in a position of wait-and-see.

    For those of you who are on the fence and don’t yet have an ING account, you have at least 3 choices: Get an ING account and keep it no matter what. Look elsewhere and don’t get an ING account at all. Get an ING account and, if they change the terms, move it elsewhere.

    Apologies for the length.

  16. Hate if you want, but betterment.com is a much better online “savings” account. Technically you are investing, but they boil it down so simple that high school students could do it. The interest rate that they get is phenomenal, and the connection to your checking account makes it just as simple to deposit or withdraw. The only downside to this is that there are no sub-savings account. If you would rather have upwards of 5 times the return on your money (I had about 8% last year) you could just keep track of your sub accounts in a spreadsheet.

    • The higher interest rate is all very well and good, but the stock market is highly volatile in the short term. I wouldn’t want our emergency savings in an account highly dependent on stock returns because my husband might well lose his job at the same time as the market drops, leaving us in a perilous position.

      For relatively short term savings (new cars, emergency fund, saving for car insurance, etc.) I prefer a more secure, but lower return.

    • Dude…that is not a savings account. Investment accounts are used for a totally different purpose

  17. Ramit

    Where do you store your emergency fund? Is it in another savings account with quicker accessibility?

    Any plans to write a post for money market funds, online brokers, CDs, etc?

  18. Hey Ramit…
    Great post man! I totally agree with this thought process. It makes everything so much simpler when you can look at your sub-savings account and see exactly how much money you have in each category, as opposed to having one savings account and tracking it in an excel sheet. Because every time you make a deposit, then you’d have to remember to make a note in your excel sheet to remind you what that deposit was for.

    So if your car windshield needs replacing – just take the money out of the car maintenance account and there’s still money in the vacation account to do a spur of the moment 4 day weekend in Vegas!!

    I’ve been doing this for a few years now…and it’s awesome! Stress has gone down knowing that I have money set aside when something comes up.

    I like your “Stupid Mistakes” account..hahahaha. I laughed at the title of that one…. that’s a good idea. You never know when you’ll need money to bail you out of jail for doing something stupid.

    LOL!!!

  19. In response to comment number 3 [it seems there is no way to reply directly to that comment]:

    Ramit,

    I agree that there is no reason for ING Direct users not to wait and see what changes as a result of the sale to Capital One. It’s not like anything has gone wrong yet, and ING’s features are great. But you’ve said yourself in a Yahoo Finance interview with CreditCards.com that ” I also like naming names for excellent and terrible cards,” and went on to say “Capital One : I would never use their cards. I hear horror story after horror story from my readers about them.” In this forum alone, Paul [comment 25, above] gave another example. So perhaps it should not be so utterly mystifying that those same readers would turn to you for advice when they hear that ING Direct is being absorbed by Capital One. [see your article at: http://finance.yahoo.com/news/Ramit-Sethi-Being-rich-money-creditcards-1701123327.html?x=0. Maybe you were paraphrased? It happens all the time in interviews...

    You've notified readers about changes in your recommendations before. In fact this was the reason for your last post [http://www.iwillteachyoutoberich.com/blog/my-favorite-credit-card/]. Readers benefit from these kinds of updates because banks and credit card issuers change their offers and their terms, sometimes for the worse. You recommend to readers that they get 85% of the way and move on. But in your credit card post, you said:
    “And so I began an exhaustive search for a new credit card. Because I spend a significant amount on my credit card, I expect significant rewards. Also, I consider it a fun game to find the 99.99999th percentile best card in the world.”

    It’s possible that the people emailing you thought that you’d done the same with online banking, and that you might know something they didn’t. In any case, thanks for the great post, and I hope that you’ll keep readers updated in case things change.

    Thanks again.

  20. Ramit,
    I really dig your three recommendations, but I was wondering if the awesomeness of the credit card and accounts, is true when traveling overseas (international ATMs, credit card purchases, etc). I am planning on doing some substantial international traveling this upcoming year, so I would love to hear your thoughts. Thanks.

  21. [...] at I Will Teach You To Be Rich suggests his favorite savings account, checking account and credit card. I am in the market for all of these accounts so I appreciate the [...]

  22. So are these subaccounts with ING actually separate accounts with separate account numbers?

  23. Do you have any thoughts about PNC’s Virtual Wallet Program? The Orange Savings Accounts w/ING Direct and the Virtual Wallet Program appear to be very similar.

    Thank you.

  24. Great article I am going to look into this. Even though I’m happy with my savings account this sounds like it has more to offer. You never know when your going to find some great information when your not even looking for it.I just happened onto your site from something you posted. That’s the great thing about the internet it really informs you about so many great things that before we would have to rely on word of mouth from a limited amount of people.

  25. Would also like to hear some opinions on the PNC virtual wallet. After reading through all the comments I was surprised there were none.

  26. [...] the Capital One acquisition will mean for ING Direct. As you know, when I recommended my favorite savings account, checking account, and credit card, I named ING Direct as the savings account that I love and [...]

  27. [...] the Capital One acquisition will mean for ING Direct. As you know, when I recommended my favorite savings account, checking account, and credit card, I named ING Direct as the savings account that I love and [...]

  28. [...] the Capital One acquisition will mean for ING Direct. As you know, when I recommended my favorite savings account, checking account, and credit card, I named ING Direct as the savings account that I love and [...]

  29. [...] the Capital One acquisition will mean for ING Direct. As you know, when I recommended my favorite savings account, checking account, and credit card, I named ING Direct as the savings account that I love and [...]

  30. Damn!
    Only the US branch if ING direct offers sub savings accounts :(
    I live in Italy. I checked ING direct Italy and every other italian online bank, looking for sub account services or banks that offer connection to Mint, or at least that can be connected to Quicken or similar.
    The few customer services that answered to my emails told that, yes, it is a good suggestion, but they are not planning to implement these services soon.
    No way to have that degree of automation (and freedom) I’m dreaming of since I read your book.
    Sometimes I hate my own country!

  31. [...] Thursday: The best savings account [...]

  32. [...] Thursday: The best savings account [...]

  33. Haven’t found any sub-savings accounts in Germany either… :(