I was sitting on my couch one evening, heads down on my laptop half listening to a baseball game looking at our bank transactions. These days with the available technology, I’m aware of every action North of $100 via text message concerning our accounts, but I like to peruse frequently just in case there was something I missed. Often in a meeting my phone will vibrate and I’ll acknowledge in passing that a debit of 100-some-odd dollars was posted via automated payment; “probably the cable bill” I’ll think to myself. You get to know what bill is what just by the amounts.
On this night in particular one comparatively minute transaction caught my eye. It was a credit for 62 cents. It was by far the smallest deposit for that month as you can imagine. I’d be hard pressed to go through the process of depositing $0.62 even remotely. This transaction really bugged me. It wasn’t that it was out of the ordinary it was that it was so insignificant with respect to the reason for its existence. The reason that amount was credited to my account was because I parked literally thousands of dollars at my credit union. In this case we’re talking upwards of $10k. I put $10k in their hands for a month and they give me a whopping $0.62. We’re talking about 0.05% or 5 basis points. A bank wouldn’t loan money to themselves at that rate. They certainly wouldn’t loan money to me at that rate even if I gave them the opportunity to call the note in full at anytime. It just wouldn’t be worth it to them. So why is it worth it for me?
Now you might be saying aloud, “what do you expect, it’s a checking account?” and you’re right. Unfortunately that’s kind of the norm. Checking accounts are fundamentally horrible places to keep money but they are a necessity for most of us. I’m not aware of any high interest savings or checking account that allow you to make dozens of transaction each month without charging you exorbitant fee’s. I have found better but nothing that comes close to keeping up with inflation. There are some out there that pay 4% up to $2500 and 2% on ‘X’ after that but they’re all banks I’ve never heard of and they all have “minimum debit purchases”. Sometimes as many as 20 point-of-sale debit purchases. So, in order to get the 4% I have to park my money in a bank I’ve never heard of and use my debit card a certain number of times in person to qualify. I’m trying to curb spending not increase it. I also avoid going to stores at all costs. There’s really no reason to and retail outlets are designed specifically to separate you from as much of your money as possible; I don’t fault them for this, it’s just business. However, there is a reason why malls are dying. It’s because everything is available online, it’s often cheaper and I don’t have to add miles to my car, waste gas, deal with traffic, find a place to park, risk an accident, etc…. So, suffice it to say, a minimum number of point-of-sale debit transactions, for me at least, is a non-starter. So far, I have some guidelines for a checking account.
- It must be a main-stream bank (Uncle Al’s Savings and Loan 2500 miles away isn’t going to do it for me unless they’re guaranteeing 15%) and, of course, FDIC.
- A minimum number of POS purchases is unacceptable. Essentially, this account is to server as a hub to pay my bills and little more
- “Free Checking” is a given. I’m not paying fees including ATM (in or out of network) and/or minimum balance fees. We’ve already stated that a checking account is bad place for money so I’m looking to keep “cost of living” in this account at best.
- Better than my current Credit Union’s APY (which is %0.05) but I’m under no illusion that this account will generate more than enough to buy a small cup of coffee every month. At this point it’s just a matter of principal.
According to the above criteria my Credit Union wasn’t cutting it. So, I began my search via Google looking for “high yield checking accounts”. As I’m sure you can imagine, I got a lot of results. Most of the “high yield” checking accounts were banks I’d never heard of. One of them was called, “Bank of Internet” which to me sounded like it was probably run by Somali pirates. There were others as well that just didn’t sit right with me even though they were offering higher interest rates than most. But, as I was not planning on parking a whole lot of money here I was more inclined to do business with a bank that I knew and had a good track record. One bank in particular caught my eye that felt familiar; Capital One.
I had seen the “Capital One 360” commercials but never paid much attention to them. At that time I thought, “a checking account is a checking account, right?”. But this did check off the first bullet in my list; it’s a main-stream bank. O.K., one down. So, I looked to see if they had a minimum POS transactions per month; they do not. Great! Two down. Bullet three; was this free checking? Yes, it is fee free. Do I require a minimum balance? No, I do not. Are there ATM fees in or out of network? No, there are not (this excludes vendor fees or “ATM Owner” fees but ATM visits for us are extremely rare, anyway). The last bullet should have been extremely easy to beat. Does this account offer better than 0.05% APY and, of course, it does. On the balance I plan to have in there it will earn 0.20% which is 4 times what I’m getting now. I felt this was sufficient and decided I will open a checking account with Capital One. However, something else caught my eye.
As you may recall I mentioned I had about $10k in my current Credit Union’s checking account. I also had a decent amount in my Credit Union’s “savings” account (I’m sarcastically using quotes around “savings” because it was basically just another low-yield, rusty bucket for my money to rot in while losing value to inflation). As I was visiting Capital One’s website for information on 360 Checking I happened upon their Money Market account or the “Capital One 360 Money Market”. At the time they were offering 1.65% on balances over $10k. Score! There’s one important factor that, up until now, I haven’t mentioned regarding money; liquidity.
Liquidity refers to how easy you can get your hands on your money or, perhaps more important, how quickly. Remember, I have a family of four and I am a homeowner. Sometimes the unexpected happens and we need relatively quick access to our money without having to pay enormous penalties. Certificate of Deposit’s or CD’s, for example, have a higher interest rate than a Money Market account but if I need my money immediately I could face a penalty of up to 12 months of interest. Too risky. Right now a Money Market account looks like a good fit. At the end of the day it’s really about what fits for you, your lifestyle, your level of acceptable risk and your family. For me I always have to remember that there are three other people, two of whom are under the age of 7, that rely on me for financial security.
So, now I have decided to open two accounts with Capital One; a checking account and a Money Market account. The checking account will serve as a hub through which all of our bills will be paid and the Money Market account will be used as a savings account through which we will earn higher than average interest compared to traditional savings accounts and that money will be available within three days should I need access to it in the event of an emergency. Much Better!
So, now I started doing some math to see what sort of “returns” we would get from this Money Market account. Since I opened the account the APY had actually gone from 1.65% to 1.75% on balances greater than $10k, so, via an online Calculator I punched in the numbers on $10k to see what one month would bring us. It came out to be $14.58. We’re not retiring early by any means but compare that to the $0.62 we were getting just a month ago and that is reason to celebrate!!! This is where I had an awakening. By doing a little research from the comfort of my own home and transferring our money from one institution to a better institution I increased our return 2251%. To me that is incredible and that is where I asked the question; could I find a way to passively generate $100 per month? To some out there this might seem like a low number but I felt it was a realistic goal for someone like myself. Someone with no financial education beyond what life has taught me thus far. Perhaps some of you out there might be thinking this is a difficult task. Perhaps it is. But I think it can be done. But what does passive mean? I have some thoughts on this we can discuss during part three. Stay tuned.