Savings for Dummies 101

October 1, 2007 10:55 AM

US sock-money-away question: Do I want a standard savings account or is there something better? Let me explain.

What would be the best account to get and from whom, where I can deposit small sums of money every week and then write a check, and perhaps earn some interest in the process? This is to sock money away to pay IRS quarterly taxes for being self employed. The principal would be about $100 at the start of each quarter and would build up to about $4000 at the end of the quarter. This money would be untouchable until it was time to pay the IRS at the end of the quarter.

I'm not sure what route I should go to safely earn interest, especially with the banking scene constantly changing and evolving. Is a savings account the way to go (I know banks are getting stringent about minimum balances)? CDs?

posted by hodyoaten to Work & Money (18 answers total)

I would probably go with an insured money-market account from a bank you do business with already (so that they might not care quite as much about the minimum balance requirements). Most of them have check-writing privileges and you can set up electronic or automatic withdrawals from your checking. They'll generally pay slightly better interest than standard savings, too.
posted by Kadin2048 at 10:59 AM on October 1, 2007

Get an account with an credit union (normally low balance requirements) nearby for depositing the money. Then get an ING account and link the two accounts. When it's time to pay IRS, transfer the money, write the check. I believe ING currently pays 4.75%.
posted by Ferrari328 at 10:59 AM on October 1, 2007

ING's currently 4.3% for a savings account, but it or a comparable account is definitely your best bet. I use ING myself, and I find the interface very nice to work with. A CD would earn a little more interest, but you can't incrementally add to it like you want to do, so an online savings account with a high interest rate is definitely your best bet.
posted by Tomorrowful at 11:06 AM on October 1, 2007

Additional note: ING doesn't have a minimum balance, which is one reason I use it, though if you shoot me an email, I can send you a referral that'll make you $25 and me $10 if your first deposit is over $250.
posted by Tomorrowful at 11:12 AM on October 1, 2007

Get a high-interest online savings account—that's what I've done. When I get paid by a client, I lop off what I think will be taxable (in my case, around 30%, though YMMV) and transfer that to one of my HSBC online savings accounts. That particular account I keep for tax payment purposes only. (I have other HSBC accounts for other purposes, too.)

And, yes, at the end of every quarter, I pay the estimated taxes by (cheerfully ) handing over to Uncle Sam whatever I've put into that account. I'll leave whatever interest builds up in that account in the account, however; gee, I think right now, I must have about a hundred bucks of interest money sitting in there. Not bad, eh? :-)

As far as which online bank to use, I've been happy with HSBC (which just lowered their rate to 4.5%, as have some other online banks). ING is good, but their rate has historically been a little lower than HSBC. FNBO Direct and ETrade pay a little higher—after the recent rate drop, FNBO pays 5.05% now (down from a 6% promo rate), which is what HSBC was paying. (Warning: FNBO Direct's customer service has prompted flames at certain online forums, most notably because of a snafu regarding an e-mail that claimed customers' accounts were being frozen due to "Patriot Act requirements"; that e-mail was mailed to all of their customers (in error), and the bank was apparently flooded with calls from irate customers threatening to withdraw their money. They had to post an apology on their home page! Still, the interest rate was good enough to lure people to that bank during the promo period.)

E-Trade hasn't lowered their 5.05% rate yet... though you never know.

(For people who have over $10K to invest in a savings account, Countrywide Bank is still at 5.50%, but for anything under $10K, they're at a paltry 4%. Despite the recent subprime loan scares, that bank should be OK, as long as you keep under the FDIC-coverage maximum of $100K, just in case! The only issue with Countrywide's Savings Link online account is that it looks like you can only link one other bank account with it, whereas most of the other allow for multiple bank accounts to be linked to the online one.)
posted by kentk at 11:17 AM on October 1, 2007

You can link five banks with SavingsLink now.
posted by grouse at 11:54 AM on October 1, 2007

I had accounts at both HSBC and ING and dropped HSBC because they took longer to transfer money back and forth.
posted by kirkaracha at 11:54 AM on October 1, 2007

Use Ing and get their checking account too. They'll mail checks for you, and you get instant transfers from savings to checking.
posted by smackfu at 12:11 PM on October 1, 2007

Yes, banks which use the Cash Edge software (HSBC and some others) can be slowpokes when transferring funds. Methinks they just want to take advantage of float, in the worst way! (Well, "worst" for the depositers, that is... "best" for them.)

I have HSBC's Online Payment account (an online checking account, sans paper checks), and although it works fine for me, I notice that when I make a deposit to an HSBC ATM, it takes a day for it to show up... so I can deposit on Monday, and finally on Wednesday the money shows up. But what are they doing with the money in the meantime? Certainly not paying me interest, I'm guessing.

Some online banks can actually transfer money rather quickly... GMAC comes to mind, besides ING. (GMAC just raised their money-market rate to 5.25%, FWIW. If you only need to make six or fewer tax-related transactions a month, that account would be fine. If you require more transactions per month, it'd be best to look into a savings account.)
posted by kentk at 12:57 PM on October 1, 2007

Oh, crap. Never mind that spiel about GMAC and 5.25%. That was from a blog post from October of last year! That bank is currently paying 4.9%.

That'll teach me to read dates more carefully! <mental head smack>
posted by kentk at 1:09 PM on October 1, 2007

Emigrant Direct is also good, but ING has more tech savvy.
posted by 6:1 at 1:14 PM on October 1, 2007

Even though GMAC Bank's rates are lower now, I think they are still a very good candidate. It's the only bank I found which offers a combination of top-tier rates (which they are fairly quick to increase when the general interest rates go down), checkwriting and ATM rebates.

BTW, any 'savings' or 'money market' account will have the 6 withdrawal limitations (you can make at most 6 withdrawals in a month, and get slapped with fees for more) due to federal regulations. However, you have an unlimited number of deposits a month, so unless you use it as your primary checking account, there shouldn't be a problem. In fact, I use GMAC as my primary checking account, having my bills auto-paied with my credit cards and only using 2 withdrawals a month to pay the cards.
posted by bsdfish at 1:36 PM on October 1, 2007

bsdfish, you know, I had thought about signing up with GMAC at one time and doing what you're doing, since I have most of my bills routed through my two credit cards, much as you do. But I discovered that (at least in SoCal), you can't pay utility bills through credit cards—the electric, gas, and water utilities don't have provisions for that. They'll only auto-debit out of bank accounts. (Cable companies are happy to do credit cards, though.)

Since I didn't want to get too close to the six-a-month limit for transactions, I shelved that idea. I suppose it could work, though, if I simply transferred the amount of my utilities to one of my other bank accounts, and paid through there. Hmm... You've given me an idea. :-)
posted by kentk at 2:13 PM on October 1, 2007

Your average balance is going to be about $2000. I would just put it into the savings account attached to whatever checking account you use for your business. Some of these other suggestions might earn you a couple of percent more, but that only amounts to $40 per year. My time it too valuable to spend messing around transferring money between accounts to save $40 a year. Your mileage may vary.
posted by JackFlash at 4:27 PM on October 1, 2007

I also really like my ING account, for what it's worth.
posted by bitter-girl.com at 5:26 PM on October 1, 2007

I also like ING. It's very easy to use and earns a lot more than a savings account in general.

Previously, I had a so-called Interest Maximizer money market account with Bank of America, and at some point late last year they all but quit giving interest on those, but didn't really notify customers. And yet I need to keep $300 in there to keep my regular checking account free. Sigh. (Yes, I'm thinking about totally jumping ship soon...)
posted by wintersweet at 5:56 PM on October 1, 2007

Damn, I want to hijack this thread... Savings for Dummies 102. I'll take the ING/HSBC info to heart....

I was poor, then homeless. Now I make a relative crapload of money. I forget to move money from my checking into savings account (at a Credit Union). Last I checked I had about $25k sitting in my checking account from direct deposit.

Slight sidetrack, what do I do with this money? My 401k is maxed out. I just got a $15k/year raise. I have no clue what to do with the $$. Just like OP, I have no idea what I should do with my $$. I'm lucky if I remember to move $ into savings account.

What do you do with an extra $10k or even $20K of almost excess $$.

Gah!... $$ is hard.
posted by zengargoyle at 7:13 PM on October 1, 2007

HSBC has higher rates, but they do annoy the hell out of me. They just have weird little quirks. Like, if you want to buy a CD and you already have an account, you have to apply from scratch. Including mailing in a signature page. And then, you have to reverify your bank account with the penny deposit thing to fund it. Even when you have an active bank account tied to your HSBC savings account. Contrast Ing, where opening a new account if you already have one is 4 clicks, if that many.
posted by smackfu at 7:20 PM on October 1, 2007