Bank Account That Aids in Forced Savings?

October 4, 2006 4:59 PM

I'm trying to find a bank that might have a certain kind of bank account to aid me in the discipline of saving a certain amount of money; barring that, I'd appreciate any creative ideas on how to accomplish the same goal. More inside.

When I have excess money in a paycheck, I've been putting that money towards the debt du jour, paying off debts one by one. However, I have two 401(k) loans out that do not let me "pay ahead" on the loan; I can either pay it off all at once or continue with my payroll deductions.

This means that for both debts, I'm required to have the discipline to put that money into my savings account and not touch it. I'd like to say I have that discipline, but, unfortunately, very often I'll find myself in circumstances where I'll dip into savings and screw myself over.

I'm seeking a way by which I can place money into a savings account of some sort which would only allow me to withdraw money in two circumstances: either a major financial emergency (such as unemployment), or when I've reached the financial goal in question and am ready for the next one. Not before then.

(As far as I understand the idea of certificates of deposit, they require you to make one deposit at the time of purchase and then leave the money alone for a period of time. That's not what I'm going for. When I called my bank, they didn't believe they had any account which would match my criteria.)

I'm leery of setting something up with family or friends — not because I don't trust them, but just because I don't think it's intrinsically a wise thing to do.

I'm aware that one can disconnect the ATM card and online access from the savings account, but unfortunately, there's a bank branch right there where I work, making it just too blasted convenient.

To recap, a savings account (or a means of saving money) that essentially is "deposit-only" until such time as the financial goal has been reached, or in case of dire financial emergency.

Thoughts?

posted by WCityMike to work & money (29 comments total)

Since the bank can't determine whether you're genuinely in a "dire financial emergency" or not, I think that'll be a little tough.

The closest thing you're likely to find (as far as I can see) is getting an account with an internet-only bank like ING Direct or Emigrant Direct. Deposits are easy, and can even be scheduled. Interest rates are high for a savings account. And since withdrawals have to be done as transfers between banks, it takes 2-3 days for them to go through, making it very difficult to use the money for impulse buys.
posted by CrayDrygu at 5:08 PM on October 4, 2006

You could put the money into a trust. You wouldn't be giving the money to someone else as you would still be the beneficiary but you would need some trustees to decide when you can withdraw the money.

I think a CD would be a lot simpler, despite your desire to avoid it for some reason. You should be able to calculate exactly when you should meet this goal and have your CD mature then. In case of an emergency, you will be able to withdraw, but only with a penalty.
posted by grouse at 5:09 PM on October 4, 2006

Find a bank that is really out of your way, and setup an account there? An online bank?
posted by SirStan at 5:09 PM on October 4, 2006

ING Direct, or other such online-only banks, are pretty good, because while you can withdraw from them as needed, it takes a few days for it to clear into your checking account. I've been using them for two years now, and the interest earned is simply fantastic.

I sent you a referral. If you deposit $250, you get a $25 bonus. Ten percent! And I get $10 for sharing the love. Everybody wins!

On preview: I am too slow for CrayDrygu's skills.
posted by sdrawkcab at 5:10 PM on October 4, 2006

Grouse, the reason why a certificate of deposit doesn't work for the above is because it doesn't allow paycheck-by-paycheck deposit.

Certificates of deposit require that you deposit a big chunk and let it sit; my situation is one where I want to make contributions of smaller chunks to the point where a big chunk has been accumulated, and then pay off a debt with that chunk, and then begin again with a second 401(k) loan of greater size.
posted by WCityMike at 5:12 PM on October 4, 2006

Thanks, guys. I may very well do the ING Direct thing, then. Anyone visiting the thread, however, please feel free to chip in other ideas if they come to you.
posted by WCityMike at 5:12 PM on October 4, 2006

sdrawkcab: Mind sending me a referral as well?
posted by SpecialK at 5:13 PM on October 4, 2006

sdrawkab-sounds brilliant. Send a referral to my profile email if you wanna make ten more bucks :-)
posted by evariste at 5:13 PM on October 4, 2006

WCityMike-have you thought about investing your money in one of the peer-to-peer lending outfits like Prosper? Better return than CDs, at a slightly higher risk, and you obviously can't "withdraw" money that you've lent.

Lower-risk: T-Bills? CDs?

Outside the box: talk to your bank about a line of credit to pay of the 401(k) loans all at once, so you can repay the bank faster than you can repay the 401(k)? I think it's worth paying a small amount more interest to your bank if it means you pay off the total faster.
posted by evariste at 5:18 PM on October 4, 2006

there was an article in the wsj the other week about a site that matches people up with all kinds of financial advisors - www.myfinancialadvice.com. I tried this guy out and must say I was impressed by how thorough he was. I highly recommend them and him.

also: HSBC has an online savings account with a flexible interest rate that really does pay quite handsomly. it's free of charge, you get a debit card and they currently pay you 5.05%. I signed up back when it was 4.50% and have seen the rate rise constantly.

do it like I did and skip the card. that way, online bank transfers into your checking account (which are free, too) will take 4-5 days. that makes the itch to casually take out a couple bucks all the time a lot easier to stomach.

finally: if you absolutely want to have no way to get your hands on the money but still feel like getting an interest rate, consider registering at prosper.com and lend it to someone with a decent credit rating. just don't do it if it's all the cash you have, you don't want to be ruined if your borrower falls through, no matter what the interest rate you're getting.

(fargo: no association, hidden agenda or payback here.)
posted by krautland at 5:19 PM on October 4, 2006 [1 favorite]

oh yeah, also look at bankrate.com
posted by krautland at 5:27 PM on October 4, 2006

Heck, krautland and I are both missing an extremely obvious idea: borrow from Prosper and pay off the 401(k)s at once, then pay Prosper back as fast as you can.
posted by evariste at 5:29 PM on October 4, 2006

Credit unions are often more flexible than banks, and because they're mutuals (every customer is also a shareholder) will generally look after their customers better than banks. Each one is essentially a big Prosper group, only properly run.
posted by flabdablet at 6:01 PM on October 4, 2006

I second the love for ING Direct. I can get money out for an emergency or major expense (holiday, car repair) but it's a conscious choice, as it's not immediate. I have a debit card for the ING accounts, but I don't carry it in my wallet. I have small, weekly $10 transfers from my CIBC savings/chequing account, money I don't miss, and could easily blow on coffee and a magazine. It's fun to save where you get a decent interest rate.
posted by Savannah at 6:38 PM on October 4, 2006

eva: that will cost him dearly. 15 percent at least, 22 easily. I wouldn't advocate that.
posted by krautland at 6:38 PM on October 4, 2006

To everyone who asked for referrals: enjoy the savings. Good luck!
posted by sdrawkcab at 8:00 PM on October 4, 2006

ING Direct. Easy to get money into it, and you can make it so that it's moderately hard to get it out.

A Bank of American drone who tried to get me to open a savings account there did not believe the interest rates that ING offers.

It's a gigantic Dutch back, quite solvent, if you are at all concerned about stability.
posted by aerotive at 8:33 PM on October 4, 2006

The other nice thing about ING is that you can set up scheduled deposits with it. When I was saving up money to move to Europe, I had mine set up to take out a certain amount of money on the 16th and 1st (days after paychecks) so it basically felt to me like I never had the money and I was never really given a choice in whether or not to actually put it into savings.
posted by atomly at 8:50 PM on October 4, 2006

Damn, if I had only known y'all were thirsting for referrals, I could have supplied 'em. Not to piss on your referral parade, sdrawkcab, but ING Direct is far from the highest APY savings account available, even among no-minimum, no fee, FDIC insured accounts. See this epic Fatwallet thread on savings interest rates. ING used to be the highest, but now they trail the leader by more than a percentage point.
posted by Mr. Gunn at 9:14 PM on October 4, 2006

The ING thing that everyone is recommending works -- I'm doing pretty much what you want to do except I'm doing it to save money for a down payment (someday!). I set it up so that a certain amount from every paycheck gets debited from my checking account into my ING account the day after I get paid. That way I'm definitely saving at least twice that every month - plus, seeing the interest I've earned on the statement every month makes me happy.
posted by echo0720 at 9:41 PM on October 4, 2006

I should read more carefully - I'm doing what atomly did.
posted by echo0720 at 9:43 PM on October 4, 2006

If you are set on the savings route, you can find a savings account that has an even higher rate than ING Direct. Just be sure to pick one that is FDIC insured as not all money market accounts have to be.
posted by grouse at 2:16 AM on October 5, 2006

ING Direct or similar for short-term savings; Sharebuilder for regular (weekly, monthly, etc.) fractional-share investing in stocks, bonds, or mutual funds... if you expect to take a year or more to achieve your savings goal, you might well get a better return with a mix of exchange-traded funds (a split between stock and bond index funds, for instance) than you will with a 4% interest online savings account.

(Referrals available for either :-) - e-mail's in profile.)
posted by enrevanche at 3:33 AM on October 5, 2006

It's a gigantic Dutch back, quite solvent

that statement reminds me of what they would say of a certain british bank: they are gigantic, quite solvent and also old.

their name was barings.

ING's rate is not the highest. according to bankrate.com, ELOANs is. make sure they are FDIC insured.

5.50% ... I might just say bye to HSBC and their 5.05% rate.
posted by krautland at 10:07 AM on October 5, 2006

I'm a bit late to the party, but this thread has been really enlightening & helpful! It's helped me to realize that I really need to get my savings in order -- Does anyone, by chance, still have ING Direct referrals to offer? My email's in my profile. Thanks!
posted by dryad at 6:36 AM on October 6, 2006

dryad: Sent.
posted by grouse at 6:41 AM on October 6, 2006

Thanks very much, grouse! We'll probably be setting our account up sometime in the next week. Much appreciated!
posted by dryad at 7:42 AM on October 6, 2006

I have one solution for you.

Set up an automated monthly deposit into T. Row Price (they take it out of your checking account) in one of their low risk funds. I personally buy PREIX, their S&P 500 fund.

There is something called dollar cost averaging you get buy repeatedly buy the same fund over and over. The more votility in the fund, the more you're investment will grow over the years. See here here for a much better explaination. And yes, there is a paper saying it is "Suboptimal" however the paper doesn't take into account that you'd never get the "Single Large Investment" it talks about accumulated without the monthly buying.

While you could close the account in a true emergency, you can't just withdraw some portion of the money randomly, and pay it back (You don't have enough to do that)

Here are some neat number to deposit monthly to save at certain rates (I also use this table when signing up for monthly giving to the causes I support):
21 Bucks a month == $250 a year
42 Bucks a Month == $500 a Year
84 Bucks a month == $1000 a Year
417 a month == $5000 a Year
375 a month == $4500 a year, the max amount you can invest pretax into a personal traditional IRA (which you can also make emergency withdraws/loans with).

--Michael
posted by gte910h at 7:15 AM on October 7, 2006

The more votility in the fund, the more you're investment will grow over the years.

First, what is "votility?" Second, you can never be sure your investment will grow. It might lose money.
posted by grouse at 10:10 AM on October 7, 2006