The Personal Finance Podcast - How to Optimize Your Bank Accounts (The Exact Banking System I Use!)

Episode Date: April 28, 2021

051 How to Optimize Your Bank Accounts (The Exact Banking System I Use!) Got questions? Ask me on Instagram Here. @mastermoneyco This is the fastest way to get a response from me.  Personal Capital Free Wealth Management and Budget App  CIT BANK (Best Savings Account) Want to Support the Show? Leave a 5-Star Review on Apple Podcasts! Today We Discuss: Why Bank Fees Matter More than Interest Rates   How Many Bank Accounts You Need  Factors to Choose a Bank  The Exact Account I Use My Bank Account System to make it effortless  More Episodes You Will Love:  Emergency Funds: The Ultimate Guide to Saving Money How to Automate Your Money - The Set it and Forget it System How to Negotiate Your Bills  Check out all the Stuff I Recommend!  M1 Finance Best Place to Invest  Personal Capital Free Wealth Management and Budget App  CIT BANK (Best Savings Account) ** Some links may be affiliate links and we earn a small commission at no extra cost to you. We only recommend products we truly believe in.  Check us out on social fam!  Twitter Dollar After Dollar Instagram Learn more about your ad choices. Visit megaphone.fm/adchoices

This episode is brought to you by FedEx. These days, the Power Move isn't having a big metallic credit card to drop on the check at a corporate lunch. The real Power Move is leveling up your business with FedEx intelligence and accessing one of the biggest data networks powered by one of the biggest delivery networks. Level up your business with FedEx, the new Power Move. On this episode of the Personal Finance Podcast, we're going to talk about how to optimize your bank accounts. Up everybody and welcome to the Personal Finance Podcast. I'm your host, Andrew, founder of Dollar After Dollar.com. And today on the Personal Finance Podcast, we're going to talk about how you can optimize your bank accounts.

If you have any questions at all about this episode, hit me up. on Instagram at dollar a F-T-R dollar and follow me on Spotify or Apple Podcasts or whatever podcast player you love listening to this podcast on and please if you want to help out the show leave a five-star rating and review on Apple Podcasts it truly does help out the show now today what we're talking about is how to optimize your bank accounts because a lot of people don't understand exactly how to do this. And if you listen to the episode early on in this podcast, it's one of the first four episodes where I talk about how to automate your money. Well, your bank accounts are the powerhouse to automating your money because your bank accounts is where

your money starts to flow in and out of, from your checking account to your savings accounts. And what a lot of people do is they just sign up for the bank that maybe their parents went to for the last 30 years or the closest bank on the corner next to their house, which isn't always a bad idea because convenience does matter. But there's also ways to optimize your banks to make sure that you're getting everything you want out of your personal bank. Because once you make this decision, you don't want to have to start switching banks and trying to optimize towards interest rates and things like that.

That is a waste of time. Jumping from bank to bank to bank is a waste of valuable time that you could be spending, trying to earn more money or investing money or finding new assets to create real wealth for yourself. So what you want to do is start looking for bank accounts that you can do a set it and forget it system with. That is the maximum potential for your bank accounts. So today we're going to talk about how to optimize your bank accounts because it is one of the most important things to do in your personal finances because it's where your money flows. And before we get into how to optimize them, I want you guys to understand how banks make money.

Because a lot of people have no idea how banks make money. They think, well, they take my money, but what do they do after that? How do they actually make money? And let me put it simply. One of the biggest ways they make money is fees. So understand this. Your bank fees matter more than the interest rate that you're earning on a checking or savings account.

Why you ask? Because, for example, if you have one overdraft fee, one overdraft fee, it'll wipe out an entire year of interest that you could have tried to earn through your checking or savings account. So number one, the number one way that banks earn money, and it's not the number one way, but it's a way that banks earn money, is overdraft fees. Last year alone, banks made over $30 billion on overdraft fees. A, the Personal Finance Podcast is here to end that. part of our mission here is to teach you financial literacy. So people who listen to the personal finance podcast understand, hey, I need to reduce my spending so this doesn't happen.

I need to be aware of where my money is so that bank overdraft fees don't happen. Because $30 billion is $30 billion too much. So think about this for a second, because if you have $3,000 at a bank with a 1% interest rate and you get one overdraft fee, your entire interest for the year is gone, wiped out. it's completely gone. That's why bank fees matter so much. At a minimum, your bank should have auto draft protection, meaning it's pulling money from another account

so that if you do an overdraft, you're safe, you're not paying fees, all of those options. Number two are account fees. Bank also make money on account fees. If you're checking account or your savings account has a monthly fee, you're at the wrong bank. There's way too many unbelievable options out there of banks that don't charge anything.

and have a ton of great features because they're already making money on your money. And I'll show you why exactly on number three here. Because the third way that banks make money is they lend other people your money. So if you've ever got a mortgage or a car loan, you ever wonder where that money's coming from? Well, say if Chase Bank houses your mortgage, guess what? All of the people with checking accounts and savings account at Chase Bank, their money is being lended to you so that you can have your mortgage. And in turn, Chase Bank makes the interest rate on that money. So they're making interest on your money so that you can go ahead and buy a house.

So they're making money on other people's money. That's one of the biggest ways that they make money, because if you've ever seen an interest rate, especially when it's front-loaded on a mortgage, it's a significant sum of money. And they understand how to use that system to make plenty of money for themselves by lending out other people's money. So those are the three biggest ways that banks make money. And I'm going to show you, especially the first two, how to optimize your bank account so that you're not paying fees any more. So next, let's get into how many accounts do you actually need. So when it comes to your bank accounts, there's one word I want you to think of over and over and over again to ring true. And that is simplicity. Because what we want to do is simple.

your money to make everything easier for you because money doesn't have to be so difficult. You don't need 15 different bank accounts to be great with your money. So simplify, simplify, simplify, especially when it comes to bank accounts. Because all that does is it makes it harder during tax time. It makes it harder during all these different situations where all you have to do is just have one, two, three accounts, depending on your savings goals so that you can go ahead and optimize your money correctly. So the first one is obviously the powerhouse of everybody's financial situation.

It's a checking account. Unless you keep all your money stuffed in a mattress somewhere because you're a drug dealer, a checking account is probably something each and every one of you has. And it's where your money goes first. So the first thing you need to do with your checking account is you need to make sure that you're getting direct deposit. If you're working somewhere where it's an hourly wage and they still hand you checks or you're working at a small mom and pop shop and they still hand you checks, see if they have the capability of giving you direct deposit. That's the first way to start optimizing because it saves you a trip, A,

but it also allows you to track your money over time. And direct deposit is the first step in automating your money. So you want to make sure that you can get direct deposit at your place of work. The next thing your checking account needs to do is it needs to be able to pay your bills. I pay the majority of my bills on my credit card. Every single bill that I can pay on my credit card, I do that. Why? Because I want to optimize my credit cards so that I can have as many points.

as possible because I want to use them for travel or cash back or all these other options. But there's a lot of bills out there that you cannot put on a credit card. So what do I do? I pay those bills out of my checking account. So things like my mortgage, my utilities, all of these pieces have to come out of my checking account. That is why it's your money hub. And then obviously I pay my credit card out of that same checking account.

You got to think of your checking account as like an email inbox and all these things are coming in. And what you're doing is you're paying your bills and your direct deposit comes in. And you're delegating where your money needs to go. Now, back in the day, I used to have a significant sum of my money in my checking account because I only wanted to have one checking account and I would track everything in Wynab. But it started to get a little bit complicated. So to optimize this, I have my specific savings accounts, which we'll talk about in a second, just so I don't commingle so much cash into one account. And the other thing to think about when you're looking at checking accounts.

Is checking accounts are the number one place that banks try to squeeze fees out of you? Because if you think about it, a checking account is most likely where you're getting overdraft fees and at the same time they try to charge you for a checking account with monthly rates. Either one of those two options should not be an option for you. But if they're trying to charge you a $15 fee just to have a checking account, there's just way too many options out there. Tell them, say, nara sucka, I'm going somewhere else.

So since checking accounts are the number one place, banks try to squeeze fees out of you. Let's change that. Let's change that for each and every one of you if you're paying fees out of this. I remember when I needed to hire someone fast, but finding the right person quickly felt impossible. And if you've ever been there, you know how stressful this can be. That's where Indeed comes in. When it comes to hiring, Indeed is all you need. Instead of struggling to get your job post noticed, Indeed's sponsor jobs help you stand out and hire faster.

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Find your advisor at IG PrivateWealth.com. The next one is your savings account. Now for your savings account, you want to use it for very specific things. This is not obviously the place where you're going to invest, but you want to use it for things like your emergency. Fund, which we'll have an episode coming up, where exactly should you put your emergency fund? A savings account is one great place to do that. A down payment for a house, vacations, weddings. All of these things are immediate savings for short-term goals. And when you have short-term goals like this, you don't want to invest that money. You don't want to put that money

at risk because you're trying to accomplish a short-term goal. And if you put the money into the market and the market has a recession and your money gets cut in half right before you have your dream wedding, All of a sudden the money's gone and you can't have your dream wedding. So understanding that short-term goals, anything less than two to five years needs to be in a savings account. And if you're trying to save up, say, for something like a house down payment, that should never go in the market. Because you need to preserve that capital so that you can accomplish your goal. Here's how everything works with this. All your savings should be automated once you decide how much you want to save every single month for that specific savings.

So the only difference between a savings account and a checking account is a savings account just has a little bit more interest. They label it that way, but the interest truly doesn't matter, especially in today's markets. Interest rates are practically nothing at the time I'm recording this. So choosing a bank based on the highest interest rate, if it doesn't have a lot of the credibility things or trust or all these other options that we'll talk about in a second, that's not the best way to choose a bank. So let's get into the three factors that I use when I choose a bank. So there's three factors that I put into place when I'm trying to choose a bank. And once you choose your bank, as I've stated before, you don't need to go jumping around from bank to bank to bank. The first one is trust.

Now, we've known in the news in the past that there's a lot of banks out there that may have fraudulently charged mortgage rates or they've done all these different things. If a bank does that, I don't trust you anymore. Or the same thing goes for companies that don't let the people trade when it comes into brokerage account. You have to factor trust into that equation just because this corporation, this bank, is holding a significant sum of your money. You're trusting them with your money. So trust has to be the number one thing when it comes into play. If you get a bad feeling when you walk into a bank, you're testing out a couple of banks

and you get a bad feeling, don't bank there. It's very simple. Go where you trust the bank. The second one, and this is a really big one, is convenience. Because if the bank is not convenient for you, if they don't, have online options or ways and different features for you to be able to deposit a check super easy, or if it's not close to your house, if you want to grab some cash, or they don't have ATM options that are really easy to just grab some cash, you're never going to use that bank.

Because over time, it's just going to become cumbersome, and there's no reason for you to go to a bank that doesn't allow you convenience. So sometimes it may be best for a bank that's closest to your house, specifically for a checking account. I think savings account you can optimize a little bit more, but making sure specifically with your checking account, it's at least convenient so that you can utilize it in the ways that you need to utilize it. And then features is number three, some of which are the interest rate needs to be at least competitive. If the interest rate out there is a half a percent and the bank that you're looking at has a 0.01% interest rate, then maybe that's not the best option for you because you're not optimizing your money. Now,

I'm not proponent of just choosing a bank only because of interest rate like a lot of people do because these other factors need to come into play. But other items like transfer should be free. You should be able to transfer from your checking account to your savings account for free. If they charge you for that, you're at the wrong bank. There's too many great options of banks out there

that won't charge you for something like that. And then they should have free bill pay. If you want to pay your bills through your checking account, they should have that option where you can have free bill pay because this is the powerhouse of your money. To pay your bills, you need to automate them. And to be able to automate them,

you have to have bill pay, and you have to have transfers into your savings account. So these are just some of the features that you can look at. We'll have a couple of other features that I think your bank should have later on in this episode. So now let's get into my bank account system. So I'm going to show you my exact bank account system and the banks that I use. And within this system, it's very simple because what I want to do is make it as simple as possible and automate everything.

So I like to have my checking account and my savings account. account at two different banks. And this is a psychological thing because my checking account is for spending, if you think about it, and my savings account is for savings. So I want them separated because of that. Because commingling those two things allows you for easy transfers and you may start spending money when you don't want to because they're completely different motivators behind each account. So you want to keep them separate because it forces you to think long term. You can't be chilling with your friends. Your friends want to go get some pizza. And you're like, hold on, man, I got to wait three business days for my money to transfer from my

savings account to my checking account because I didn't budget out for this. No, it just keeps you accountable and make sure that if you have them separated, then it's okay. Now, I don't mind you having a savings account with your checking account as like a buffer. So, for example, what I do is I do have a savings account at my main place where I do my checking. And it's a buffer in between in case I need to pull, you know, an emergency $1,000 or something like that for something that happens that I need money very quickly. So here's my system. All my income hits my checking account.

So my business income transfers into my checking account. W2 income transfers in automatically through direct deposit. And I bank at Chase Bank. So I've been at Chase Bank for a very long time. I like the experience at Chase Bank. The new house I just moved into, there's one literally on the corner right down the street from me. So it's very convenient for me.

And it has all the features I want. They don't charge me for a checking account. They don't charge me for transfers. they have bill pay, they have pretty much every feature you want. Now, this doesn't mean that you need to go to Chase Bank. I'm not a proponent of that at all. Go to the bank that best fits you. That's where I go just because it's easy,

because I think checking accounts can be optimized more so with convenience than anything else. I don't favor one checking account over the other as long as it doesn't charge you fees. Then we get into savings account, and this is where you can optimize a little more. I'm not a proponent of jumping from savings account to savings account trying to get the best interest rate because interest rates change every single day. you'd be doing that all day long, that's not the best use of your time if you want to build real wealth. If you want to build real wealth, you're going to focus on increasing your income and making sure you're doing the activities that have the greatest impact for your bottom line. So I set up

automatic transfers to my savings accounts so that I can use my savings systems. So there's great ones out there. I like CIT Bank. I like Capital One. I'll leave links to those in the show notes as Well, CIT bank I am an affiliate for, but they have great interest rates. Capital One is just easy to use. Both those two are awesome. There's other great online banks out there, but I do like to have it at an online bank because it makes a little bit more difficult to pull that money if I need it. Now, do I have separate accounts for all my savings goals?

It depends. My emergency fund is in its own savings account. You don't have to do it this way. You could have it in one big savings account, but my emergency fund is in one savings account. and my other savings goals are in one of two other accounts, and that's how I separate it out. But this allows me to save for each goal. So automatically, boom, once my direct deposit hits my checking account,

X amount goes to the emergency fund, X amount to my rental property fund where I'm saving up cash so I can put down payments down on rental properties. I don't lift a finger to make this happen. I don't have to do anything because I set it up from the beginning, and it just happens. And that's the beautiful thing about this. And the reason why I like online banks, as I stated, is they usually have better rates,

and it's just more difficult to have to pull that money out if you need it super quickly. I honestly don't see why you would use a big bank for a savings account other than just having a minor buffer account with $1,000, $2,000, something like that, just in case you really have it a big time emergency and need to pull quick cash. If you want to optimize your bank, remember, if there are fees at a bank that you are at, and they have all the other features you like and you like that bank, all fees at banks are negotiable. If you can negotiate it off, stay at the bank that you're at if you like it.

And what about credit unions? A lot of people ask me about credit unions. I think credit unions are fantastic if you can optimize a couple of things there. I might transfer a specific business loan over to a credit union very soon because the interest rate is half of what I'm paying now. So there's things like that that you can do if you're a member at a credit union that maybe you can't do at other places. But just figuring out what's best for you,

what's convenient, what has the features that you want, and what doesn't charge you fees, that's how you choose and optimize the best bank account. If it has fees, you negotiate those fees off if you like the bank. Now before we wrap this episode up, let's get into the six ways your bank can help you manage your money. Now here are six other features that I like that banks have that you may want to see if your bank has, if you want to try to differentiate between two that you like a lot. Now, if you're prone to those overdraft fees, a lot of banks out there now, will give you low balance alerts because overdraft fees have become massive.

So if you're prone to that and that happens to you a lot, say you have overdraft fees more than a couple times a year, which is also too many, then you're having way too many overdraft fees as it is. If you're having any overdraft fees, it's too many. But if you're having multiple times a year, then you want to find a bank that has low balance alerts because you don't want to keep losing money that you've worked your butt off for just because you're not watching what's happening. So making sure your bank has low balance alerts is one great option. The second one is like I stated before, online and automatic bill pay.

You have to have this within your specifically your checking account so that you can automate your money. This is a non-negotiable thing that you have to have at your bank because if you want to optimize your money, all your bills need to be automated. Now if you're old school and you like to fold up a check and write a check and send it off to the utility company 10 days before it's due, then more power to you. But if your bills aren't coming in on time because you're trying to do it by hand, then you need to automate all your bills. We're past the year that in Back to the Future was the Future. If you're not automating your bills by now, then you're not in the future. Number three, and this is a really, really, really cool one that I love is subaccount

for savings. Capital One is one online bank that does this. There's a lot of other ones on the online banks that do this. But subaccount for savings means you can have one savings account and have a have sub-accounts underneath that. So you can list things like maybe you're saving for a wedding. Well, there's a wedding sub-account and it shows you how much you have in your wedding sub-account. Or maybe you're saving up also for your down payment.

Then you have your down payment line item there and it has the savings accounts there. So it's one account with a bunch of many accounts inside so that you can save for specific goals. And this is a fantastic way to save because it's like having an online envelope system. If you've ever seen the envelope system, it's an old-school method where you put cash into an envelope when you save money. Well, this is the same way, but it's doing it online. So you don't have to have a bunch of what they call sinking funds or sub accounts that aren't actually one account. So what a lot of people used to do was they would get 15 savings account and save for each goal

inside those 15 savings accounts. This is a way to optimize it where you just have one account to worry about, one account number, but all your money is actually categorized exactly where you want it to go. I think it's one of the most powerful savings tools that you can have because compartmentalizing all of your savings goals, psychologically, is just better than throwing it all in one big lump sum or separating it out in 25 different accounts. Number four, automatic savings deposits. If you can't automate your savings in your bank account, that is another red flag. You need to be able to do that so that you can actually automate your savings because studies have shown people who automate their savings save 45% more than people who don't do it.

And most of the time, people who automate their savings are actually serious about saving money. And those who don't are waiting for an opportunity so that they can have an excuse to not save money. Which one do you want to be? Because automating it shows upfront to your future self, I'm in it to win it. I'm here to do this for the long run. And if you don't automate your savings, you just want to do it manually just in case something happens. I get that. But at the same time, I don't think you're as serious about saving money.

Number five, online and mobile budgeting tools. Now, you guys know I have a bunch of budgeting tools like personal capital and YNAB that I love to use, but a lot of banks now are developing their own budgeting tools that you can utilize because you can use your checking and savings accounts that are inside those banks and optimize it that way. I think that's a fantastic way to start to budget, especially if you're doing something like the reverse budget where you don't have to actually go line by line by line item. I think that's a great way to do this. Number six, mobile check deposit. Mobile check deposit is something that you need to have if you ever

get a check. A lot of people, like I said, if you're getting everything direct deposited, you're probably only getting checks from your grandma on your birthday for $25. But if you get frequent checks, you need to have mobile check deposit, it's a big feature for you, especially if you get paid by check a lot. Who wants to go all the way to the bank, hand it to the teller every single Friday or every other Friday, get it deposited and then go home when you could just snap a picture of it and it's in your bank account. So these are some of the features that I think you should look for within your bank accounts. And obviously, as I've stated before many times, your bank account should not have fees. Your checking account should not have fees. Your savings account should be

paying you to have the money in there. This is the best way to optimize your banks. If you have any questions about this episode, hit me up on Instagram at dollar a F-T-R dollar. A ton of people have been asking questions about there, especially in the DMs. And they're surprise when I answer. Your boy's going to answer you if you hit me up on Instagram, all right? Also, follow on Spotify or Apple Podcasts or wherever you listen to this podcast. This podcast is growing, and I can't thank you guys enough for that for sharing with your friends, with your family. And if you want to support this podcast, leave a five-star review on Apple Podcast. It helps us grow. It helps us spread this message that money buys freedom. We'll see you on the next episode.

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