In the previous installment of Money Hacks for Metalheads and Old Millennials, we discussed a couple mind-blowing ways to make more money: working more and earning cash back. Learn all about ’em here. (In case you need to know what “working more” means….)
One thing I’ve been reading about while researching these articles is the balance between time and money. Just like there is only so much you can “spend less,” there comes a point where you can’t (or don’t want to) “work more.” So, is that it? Once you’ve maxed out your work hours and got the best deal on your car insurance, are you just done pursuing your financial goals?
Nope! Now it’s time for us working class heroes to get into something that The Rich have known about all along: passive income. That term means income you get from work you did once, or money you earned once that now magically turns itself into more money. There are many ways to produce passive income; this segment will focus on interest.
Interest is when a bank pays you told hold your money; the bank is actually lending out the amount in your account, and in exchange for doing so, your account earns a specified rate of interest. The interest compounds — so for instance, if you had a hundred dollars in the bank and earned $1 of interest over a year, the following year you would have $101 dollars and now be earning interest on that amount.
The reason you should care about earning more interest is because you can’t afford not to — cash devalues due to inflation, which is the supernatural process of your money being worth less every year. Meanwhile, the amount of interest paid to your regular bank accounts is the equivalent of the bank sending you eggplant pics on Snapchat. You need to find something that will at least keep pace with inflation, which is 1.65% in the United States at the moment. Here are some possibilities that are all FDIC-insured up to $250,000 (i.e. your money won’t just disappear).
- Money Market Bank Accounts — These have higher interest rates than the “deez nuts” 0.01-0.10% your regular savings account is offering. In addition to interest rates of 1.05-2.55% (at least what I’ve found online), you can make up to six check or debit withdrawals per month from most money markets. A money market bank account is a good place to stash your emergency fund or savings for your Roadburn trip because you can access it easily, but it won’t get mixed in with your regular budget. Be aware that some money markets have minimum balance requirements and it can take a couple days for an online transfer to process. ALSO — there is something called a “money market fund” that is not a money market bank account; the “fund” kind are investments which are low-risk but not FDIC insured. So, not the place for your emergency fund.
- High-Yield Savings Accounts — The only difference I can figure between an money market bank account and a high yield savings account is that you can’t write checks or make debit transactions from the savings account. But other than that, it’s pretty much the same deal — some require minimum deposits, some don’t, there will be a limit on the number of monthly transactions, and the interest doesn’t suck. Again, a good place to keep your emergency fund or savings for a big purchase.
- Certificates of Deposit (CDs) — NerdWallet.com explains that CDs are ” a type of federally insured savings account that has a fixed interest rate and fixed date of withdrawal, known as the maturity date.” That means that you put in a certain amount and the money won’t disappear — but you’ll pay penalties for withdrawing it early. So, CDs are not where you put your emergency fund. The lengthier the CD’s term, the higher the interest rate will be — in some cases, more than a money market account or high yield savings. Personally I like the easy access of the other options, but CDs are good savings vehicles for money you really don’t want to touch.
“Okay Jessie, that’s cool, but how do I get these things?”
You can get a CD from your regular bank. Just go there and say to the person at the counter, “I’d like to open a CD.” If you are a AAA member, a credit union member, etc., those kind of organizations offer CDs too.
All the money market accounts and high yield savings I’ve found accounts are online, through credit card companies (i.e. Capital One, Discover) and financial services institutions (Goldman Sachs, Barclays, Citizens Bank). Read here for high yield savings suggestions and here for money markets. There are enough options that you should be able to find one that doesn’t charge monthly fees (#deeznuts) and has a minimum balance you’re comfortable with.
And for some final thoughts on what to tell your regular bank account’s interest rates…
The next column is going to tackle a “scarier” passive income source that doesn’t have to be so scary: stock and bond investments. Get a head start and read Ted Snow’s Investing QuickStart Guide: The Simplified Beginner’s Guide to Successfully Navigating the Stock Market, Growing Your Wealth & Creating a Secure Financial Future.
That’s an Amazon Affiliate link above, but be smart and check out the book from your local library!