Savings Accounts, Not Just for the Rich

I promised to write about savings accounts, and I did go do some research. They’re such a good idea in theory. But that’s because we have these memories from years ago, of putting a handful of grubby bills on the high teller’s counter, or maybe a piggy bank filled with change. In exchange we received a cool little bank book showing that we had an account. The next time we went to the bank, tiny amounts of interest were printed in our bank book. Our balance had grown. It was a lesson in prudence and citizenship. But those days are pretty much gone. For many years now, most banks have reserved savings accounts for the people who don’t actually need them: people who have hundreds or even thousands of dollars they can afford to park at a poor rate of return. Sure, children are still allowed to have small dollar savings accounts. But adults have to keep a lot of money in the account, or else they get charged a fee that is far more than the interest they could have earned on that money.

Is $250, the floor amount required by Chevy Chase Savings Bank[[Update: They've raised it to $300.]], a lot of money? To many people, it is. Off the top of my head, here are some things I could do with $250: Fly from coast to coast one way. Rent a car for a week with unlimited mileage. Buy a game system or a basic laptop computer. Get an Orchestra seat for a performance at the Metropolitan Opera. Book a hotel room for a weekend in Las Vegas. Or pay tuition for two online courses at a community college. So yes, $250 lying fallow in a savings account just to keep it open is a sum of money that has value. It’s not just chump change.

But the point of savings is that we hold this money aside from our regular lives, either indefinitely, or until we need it for a specific goal. So in theory there’s nothing wrong with the $250 minimum, which is a lot less than the $100,000 minimum that Imperial Capital Bank wants, for instance, as the convenient comparison chart at Bankaholic shows.

Even so, for many of us the day when we can blithely shove $250 or more in one chunk into savings just isn’t happening. We need to find a place where we can start our savings slowly. The sad truth is that many of the best places to do this today are online. Online banks are offering fabulous interest rates, rates unheard of from physical banks. Why sad? Because the very people who need to start small are unlikely to be able to handle online banking, which often must be linked to a physical bank’s checking account. Which many people do not have. It’s a catch-22, a circular dilemma.

Why don’t people have checking accounts? James D. Scurlock in his excellent book Maxed Out says that people who pay all their bills with money orders and who use check cashing storefronts instead of conventional banks are not as dumb as they look. Yes, they pay high per item fees for these services. But because they only deal with their money per item, they are never in the position of having overdrawn their checking account. Thus they avoid being charged the enormous bounced check charges that are common. It takes a lot of money orders to add up to $30 in fees, the typical minimum bounced check charge at a bank. And when one is living on the edge financially, as a good friend once pointed out to me, that’s exactly when bounced checks happen. Hence the disincentive to start a checking account, and that leaves a lot of people out of the loop when it comes to accessing online banking.

So, how to save? I think the answer is to just find somewhere to put a few extra dollars. Employed people with access to a credit union often can start savings accounts there for very minimal amounts. But not everybody has that option. So what else? We’re not talking retirement savings, no IRA deposits. We’re talking old-fashioned rainy day savings. The cash needed to pay an unexpected car repair bill, for instance, so it doesn’t end up on a credit card, haunting us for years.

How about a piggy bank? It seems like a kid’s ploy, but many adults already have piggy banks, only they’re just jars with change. But most don’t contribute purposefully, with a goal in mind. So it’s usually mostly pennies and not so many quarters. And no dollar bills. If the change jar is recharacterized as a piggy bank, then the incentive to add to it significantly is born. Carol Keefe, author of How to Get What You Want in Life with the Money You Already Have suggests labeling and dating your piggy bank. Write the goal on the label, and you’ll encourage yourself to shove more money into it. You can look at the money as it adds up, which will encourage you to keep adding. Keep the piggy bank near where you’re emptying your purse or pockets each day, and it becomes second nature to toss in those extra coins and bills to make the savings mount. And in a real emergency, that piggy bank filled with change and random bills can come in handy if there’s a major cab fare to pay. It also will make a burglar reasonably happy, and you want burglars to be happy, so they stop ripping up mattresses looking for cash. Why do burglars look in mattresses? Because that’s where they keep their money.

You can also use your child’s bank savings account to hold the initial small dollar amounts you can afford to save, until they add up to enough to open your own account. That’s safer than a mattress. Another method is to write checks in small amounts to savings even though you won’t be cashing or depositing the checks. Then subtract those small amounts from your checkbook. Keep a tally elsewhere, so you’re not tempted to re-purpose that “saved” money for bills. When it adds up to enough to open a savings account, it’ll be easy to write a new check for the total. I don’t recommend the strongbox in the back yard routine, because access to your savings could be a problem. What if you got too ill to remember where you buried it, or to dig it up? You need access to savings, because savings are meant to be available when there is an emergency. That’s their purpose.

It used to be that the purpose of savings was to assure your future. But 401k plans have brought a huge middle class participation in the stock market, and a consequent realization that for money to grow, it needs to be invested in a financial product that stays ahead of inflation. Historically, that would be stocks, not savings. Savings banks historically were important in bridging the gap between poverty and wealth. In New York there used to be savings banks with names such as Dime Savings, for instance, because you could open an account with a dime, back when a dime would have bought dinner. But that’s 100 years ago. The principle of starting bank savings with a very small amount has been lost. But meanwhile the safety of bank accounts has improved, because they are insured. Fine, but you’re still throwing change and one dollar bills into a cookie jar to add up to the minimum initial deposit to open a savings account. Or writing tiny checks for $3.76 to mythical “savings.” It’s onerous. It’s annoying. My suggestion: Just do it. Despite all the important things you can do with $250 or even $500, most of them are not that important. Make that initial contribution to savings an important goal itself. And while you’re in the process of saving up to open a savings account, visit a batch of local banks and pick the one whose terms and access seem the best to you. Maybe it’ll be the bank that has many branches. Maybe it’ll be the bank that’s the easiest to park at. You don’t have to consider ATMs, because you aren’t going to be taking the savings out randomly. So look for other plus marks, like pleasant tellers. Banks are heavily regulated, so the terms from bank to bank may not vary dramatically. You might as well find one that you like.

Goal-oriented behavior helps reinforce your motivation to reach the goal. So, all the small steps, the labeling the change jar, the adding larger coins and bills, the deposits to your child’s savings account, the writing tiny checks, the scoping out all the local banks, all these help you save those first crucial dollars. The day will come when you’re ready to go beyond a local bank with your larger savings. But for now, start small if you have to, but do begin saving.