moneyOne of the things my mother always told me about savings is that your money should be working for you. This means that if you have a sizable account balance, it shouldn’t just be sitting in a checking account earning a tenth of a percent interest. Even if you have the FDIC maximum balance, you’re only making around hundred dollars a year, depending on your banks interest rates. Clearly, your money isn’t working for you. With a little time invested in setting up and organizing your accounts though, you can get more return on your money.

Even though they don’t have great yields, if they offer any interest at all, checking accounts are something of a necessary evil–especially since I associate them almost exclusively with paying bills. There are some better options though: online checking accounts offer substantially better interest rates, typically around 1-2%. And because online banking is a free service linked to accounts, you can set up online bill pay where checks will be made for you for free (since my bank charges for books of checks, that’s a minimum of twenty dollars saving a year). If you’re not willing to switch to internet banking, it can be worthwhile to ask if there are better interest rates available. If you’re bringing a modest balance and are “new money” (meaning you don’t have any previous accounts at the institution), banks may be willing to get a higher interest rates for you. (Though this is particularly true of CD’s, there may be good rates that aren’t being advertised, and some banks may match competitor’s banks if they want to retain customers.) There are also higher interest rates for maintaining higher balances, if your lifestyle permits you to do that.

In case you haven’t stopped by your local bank lately, interest rates have plummeted. Banks like Wachovia are offering interest rates in excess of 5% for CDs in an attempt to rebound from the nearly 9 billion dollars lost in the second quarter. Though online banks have dropped their interest rates as well, at 3% or more they’ve been on par than the CD rates available, and they don’t require locking up funds or a minimum balance. Now one financial blogger, Ramit Sethi, has set up on his website a list of the accounts that he has, and while the elegant simplicity of his list of accounts is appealing, there having more accounts isn’t necessarily a bad thing. If you remember your high-school math, dividing your savings between multiple accounts wouldn’t seem to make a difference on the surface. After all, the initial quality times the interest rate is the same as the balances in the multiple accounts added together and multiplied by the interest rate. Here’s the catch: multiple savings accounts can trick you into saving more. And multiple accounts that encourage a higher balance will mean more accrued interest than a single account with a lower balance.

Different types of savings accounts:
J.D. at Get Rich Slowly mentions targeted savings accounts to save up for special purchases, like electronics. And of course, there’s the emergency fund. I also started a “not-spent” savings account recently. Reverse budgeting is still my favorite, but it’s also a pretty satisfying feeling to be adding even more to your savings.

My sister love clothes shopping and loves getting a good bargain even more. She’s found designer clothing for hundreds of dollars off, and concludes every shopping trip with the comment “See how much I saved?” Now I always thought it would really be saving to not make unnecessary purchases in the beginning, but by smart shopping she had saved a bit of money.

Similarly, I’ve created an account into which I can deposit money that I would have otherwise used to purchase something. For instance, I’ve been fighting the urge to get a container of Ben and Jerry’s Chocolate Chip Cookie Ice Cream, also known as my secret weakness. Because abstinence is easy and it’s temptation I have a problem with, I don’t want a container of ice cream in my freezer calling to me when I should be eating sensible meals, like dinner. After avoiding it for nearly three months, I’m rewarding myself by depositing the money into my high-interest savings account. It may only be a couple dollars, but it can add up.

Alternatively, you can deposit the amount you saved making a purchase into this “not-spent” account. In my sister’s case, that might not be feasible as she buys discounted clothes because she doesn’t have hundreds to spend, but even kicking back a percentage of the savings can make a difference.

Another alternative is the aforementioned ‘slush-fund,’ or what is essentially coin-jar account. After watching a customer do this for years and realizing he’s accumulated a substantial balance, I began cultivating my own slush fund. I’ve been depositing various coins and one dollar bills I’ve accumulated into my savings account, totaling $20.20 in the past week alone(of course, if you get lots of ones as change it does make a difference).

It may not seem necessary to keep all these accounts separate, but psychologically, having specific goals and methods for where to deposit what can mean an increased minimum balance which means increased yields. Whether you’re creating high-interest accounts or targeted savings accounts, your money should definitely be working for you, rather than sitting in an account not earning interest.