You may not want to clip coupons, or you may not go to discount stores.  But at least, you should follow these two effortless saving tips that will save you big money in the long run:

1. Earning interest from idle cash: Open an Emigrant Direct Saving account at 5.15%, or HSBC or Capital One accounts that consistently pays a higher interest rate.
2. Earning cash while you spend: Get a Citi Dividend Platinum Select Card to get 5% cashback on your gas/drug/grocery purchases, and 1% cashback on all other purchases.

There may be other better banks or better cashback credit cards, but if you do the above, at least you have a very good start.  How much money you can save in the long term?  With #1, assuming that you have just an average balance of $1000 in the account, and let’s use the comparison of 5% in Emigrant Direct and 1% in Bank of America savings account (it’s probably lower), the difference in yield is 4%.  I’m going to use 3% for the yield difference to be more conservative, since the money market account won’t always yield as high as 5%.  Because of a consistent 3% higher interest rate, in one year, you can save $30 extra in interest money.  For the next 40 years or so, you can get $1200 interest money.  I’m using simple compounding because most likely you will spend those $30 right away every year.  And that’s just for an average balance of $1000.  If your average balance is higher, your extra savings will be higher.  Now, tell me how much time does it take to open an online bank account?  Yes, in about 30 minutes of one-time effort, you can probably earn $1200 in additional interest for every $1000 average balance.  You just get paid at an hourly rate of $2400/hr.  That’s a huge return on your time spent (using just $1000 average bank balance).

Now on the credit card, it’s an even better return (well, for people who spend more but save less).  Monthly, let’s assume that your family needs to spend some $250 on gas, and $500 in grocery store, and another $750 in other expenses that you can charge on credit card.  Using the Citibank card, you can get ($250 + $500) * 5% + $750 * 1% = $45 per month or $540 per year (by the way, Citibank card has an anual limit of $300 rebate, so you will need to apply for two cards to split this $540.)  Now, multiply $540 by the next 40 years, and you will get $21600 in cash rebate in total, TAX-FREE by the way.  Again, how much time does it take for you to apply credit cards?  Half an hour or so, and you would have paid yourself at the rate of $43200/hr.  Now, if that is not good use of your time, then I don’t really know where else you can earn $43200 per hour, tax-free.  (Unfortunately, if you have some debt on your credit card, you may need to shop differently for a lower APY instead of getting cashback.  Now you know why credit card debts are not good.)

Of course, the above scenarios assume that both the bank and the credit card continues their end of deal.  As far as I can see, and from my personal experiences too, there seems to be no reason that they will change their way of doing business.

Please do yourself a favor.  When you have time, go to the links and open those accounts.  I’d rather see you get richer than big corporations getting filthy rich from scalping average people.

For more information, you can read the following posts on credit cards and banking:

1. Why I would choose EmigrantDirect over others
2. How I Bank
3. Comparison of Cashback Credit Cards for other good deals on credit cards.

Obviously, when opening a bank account, interest yield is very high on my list. The more important thing than having the absolutely highest yield is whether the bank is consistently competitive in offering their bank yield. You don’t want to open a bank account and several years later go through all the hassle of moving money around to another better bank. Consistency for me is more important than absolutely highest yield. Among the online bank of choices from NetBank, ING, EmigrantDirect, CapitalOne, HSBC, IndyMac, both NetBank and ING have fallen behind the curve of competitiveness of the market. While NetBank still have the attractiveness of close to full banking service for writing checks and free online payments, ING has no additional attractiveness other than being the first to market with more credibility. IndyMac bank requires a minimum deposit of $25000 to get their highest quoted APY. For most people to find higher bank yields then, one is left with the choices of EmigrantDirect, CapitalOne, and HSBC. (There are always many other ones, but I’m only limiting my discussion to the more well-known choices.)

To narrow down my choice, I would be using a criterion that not many people pay attention to: financial risk of the bank. Most people overlook the financial risk of the bank when opening a bank account because bank deposits have FDIC insurance for upto $100K. But as with everything else, extra yield almost always come with extra risk. Nothing is riskless, even for bank accounts in my opinion. The financial risk with bank accounts is whether the bank institution will go belly up and force you to go through FDIC to recover all of your money below $100K. It’s a hassle that you would probably never want to go through. The best way to avoid that risk is to have your money split in two different banks, so that the probability of simultaneous belly-up is close to nil. This way, you will be always left with some money to get through the period of recovering your money from FDIC. But if you don’t want to have the hassle of managing two bank accounts, and just want to consolidate into one bank, which one of the above three would you choose?

From my stock investing experiences, I can tell you that I would choose EmigrantDirect over others. In 2002 slowdown, when I was looking for short-selling candidates in the area of consumer credits, I found two companies that had higher deliquency and bad loans on their consumer credit cards among others: Metris (MXT for its symbol, Yahoo’s message board & thestreet.com joked that you definitely don’t want to put your money under this mattress or Metris), and Capital One (COF for its symbol). And guess what? Metris is now under HSBC through acquisition, and Capital One has started offering banking services more actively. Is this a coincidence? I think not. In fact, it may really make a lot of sense. The only reason that banks want to offer higher bank yields than others is to attract more cash money, and nothing else. Why would a bank give you more interest money besides that? It’s a capitalistic society, and they are not charities. Now, the next question that you should ask yourself is that why do they want your cash. And the answer could be that they REALLY need it (for their delinquent real estate or consumer credit card loans). If they are desperate, or close to edge of going belly-up, you definitely don’t want to get into that mess.

While my information from 2002 is quite out-dated but still may be true, I really don’t want to take such chance with my money. Here are my views for each, assuming that not too much has changed since 2002:

1. Capital One: Based on the risk assessment, this could be the worst choice. Why would they start offering banking services more actively? If you understand banking, you would know that for every dollar of bank deposit, they are allowed to lend out about $10 of loan. It’s called fractional reserve banking. With sufficient bank deposits, they can make both of their book on consumer loan and banking to look sufficiently decent, with this 10X help.
2. HSBC: Because Metris was acquired by HSBC in Dec. 2005, your risk is averaged with the new merged company. I assume that the averaged risk should definitely be lower than Metris standalone, and therefore, HSBC should have lower risk than Capital One.
3. EmigrantDirect: I cannot find their stock symbol (if it exists). I believe that they are probably a relative new player. A new player is good in the sense that it will take quite a long time before they screw up themselves totally, with the help of the 10X fractional banking reserve. They could pretty much mess up, and still limping forward. It’s very hard to get a bank to fail in general, and even harder to get a new bank to fail financially. While there are other risks such as internet security, I have no such information to be compared for these three banks. But a newer bank like EmigrantDirect in respect to financial risk of the bank should be on a solid ground.

I still believe that the above three should be quite good choices because it’s simply very hard to get a bank to fail. However, I prefer not to take a higher risk for such a tiny difference in the interest yield. Yes, you would earn $8 more a year on every $10,000 of deposit at Capital One, and receive $25 if you pay $100 Costco executive membership. And yes, you would earn $5 more a year on every $10,000 of deposit at HSBC. But the race of chasing the absolutely highest yield is simply elusive, especially when EmigrantDirect will be raising its 5.00% APY to 5.15% very soon.

Here is a short review for EmigrantDirect in case you want to read it over before opening an account. And if you appreciate for my effrots in offering you good financial information on this site, please open the EmigrantDirect account through the sponsoring ads on my site. It will help me defray the website hosting costs and misc. for the year and the coming years. I would really appreciate it.

P.S.  Please do check out the comment sections.  I won’t be pretending to “know all”.  In fact, I probably looked a little stupid.  But in any case, no one can know all, and no one can be perfect, and that’s why in the comment sections, there could always be some people who are kind enough to share their knowledge.

I actually started online banking back in 1998/1999 when I first read an article on online banking in BusinessWeek.  The article was comparing two internet banks, and I chose to give NetBank a try.  NetBank was one of the highest yielding banks in the nation at that time according to www.bankrate.com, and has been so until recent last 2 to 3 years.  I made sure that NetBank was listed at FDIC http://www2.fdic.gov/idasp/main_bankfind.asp database, and then I started my online banking.

In the beginning, I didn’t have a lot of trust.  So I started by depositing some small amount of money, and tried to withdraw money from my account by checks & ATMs.  After everything seemed to work fine without any problems, I started to move majority of my cash holdings to NetBank. 

Because of the inconvenience of online banking, mainly due to very few free ATMs, I keep accounts at two local banks.  In one local bank, I only have saving account to reduce the amount of money that I need to keep for minimum balance to avoid fee, since checking account usually has a higher minimum balance.  In another local bank, I have both checking and saving accounts, so that I have at least a checking account locally.  And my rationale to have two local banks is to simply increase the total number of free ATMs that I could use in a short distance from wherever I was.  Of course, if you don’t have enough cash reserve, you probably want to limit the number of banks you have.

This strategy of having an online bank and two local banks have served me well.  I can easily access my small cash need, while I can keep the majority of my cash in a higher yielding online account. Depending on your comfort level for accessible cash, you can put that amount in local banks, and put the rest in online accounts.  Since I conduct most of my purchases through credit cards, my need for cash is low.  I usually only keep about one thousand dollar in local banks, but it could vary from a few hundreds to just less than two thousands.  And to avoid all kinds of ATM & bank fees, I define my accessible cash as any amount over the minimum balance that is required to avoid monthly fee.  And I always use the ATMs of my banks.

I also take full advantages of (free) online payment offered by NetBank.  Every month or quarterly, depending on the bill frequency, I pay my electricity, gas, water, trash, home owner association dues, and two of my credit cards automatically.  My phone bill and auto-insurance is paid automatically through credit card instead of NetBank, since I can get the 1% cash rebate on credit card charges.  Having all the bill paying arrangements, I spend probably less than 10 minutes for viewing or paying all of my bills, excluding credit card bills.  And I make sure that there is sufficient amount of money for payments by setting up an automatic transfer of an upper estimate of the total bill from my major high-yielding money market account to the checking account that allows unlimited withdrawals.

In summary, I try to achieve the followings for my banking needs:

1. Easily accessible cash by having two local banks.
2. Higher yields for most cash in accounts at my online banks.
3. Avoid any bank or ATM fees by using ATMs of my banks.
4. Take full advantage for online bill payments to save time & stamps.

By the way, I opened accounts at INGdirect a few years ago, and now I’m still debating whether it is worth my time and trouble to move my INGdirect accounts to EmigrantDirect for their exceptionally high yields currently at 4.50% 4.65%.