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Most Americans probably bank with Bank of America. It is the largest commercial bank in the United States and the third largest company in the world (from Wikipedia). But did you know, that if you are saving through Bank of America, you are actually losing money. That’s right, your money is worth less today than it was yesterday. I just got my statement from Bank of America and my interest rate on my Savings has gone down from 0.5% APR to 0.20% APR. Even though the Federal Reserve has increased interest rates (which means both loans and savings should presumably go up), the interest rate on my savings has actually gone down.
Now, why am I losing money by saving money? Because inflation is higher than the interest earnings on my Savings.
Check this out:
If you put $1000 in Bank of America Savings at 0.20%, your interest rate earnings at the end of the year (non-compound, but the difference is negligeable) is $2. That’s right, $2. And then of course you pay tax on that $2, which if you are in the 15% bracket, you net with $1.70 (I think that’s enough for a cup of Grande Coffee at Starbucks).
But wait, what about inflation? A year from now, your $1000 is only worth $970 because of about a 3% inflation rate. So your $1000 is not worth $1002, it’s actually worth something like $971.70. So you effectively lost $28.30 in value.
What is the answer?
- Shop for better Savings rates. Check out ING (and if you decide to sign-up, show me some love and let me refer you so I can get some love from ING as well)
- For long-term, think stocks.
- For intermediate-term, think I-bonds (government bonds that are inflation protected) or Certificate of Deposits (CDs).
Finally, for those of you who refuse to take my humble advice and want to lose your money to Bank of America, how about this, you invest in the Bank of Eddy. I will give you 1% rate on your savings (5 times better than what BofA offers) and I will pay any tax on your interest earnings. I know, I know… I’m being sooo generous!
(I’ve been meaning to start a finances only blog… maybe that’s my next hobby!)
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B of A is a pretty shady bank. I have not had good experiences with them. If you have an account with them, double check your bank statement! They were charging me for a mistake that they had made. Ridiculous!
Oh Amanda… Don’t even get me started with BofA. They have some great things going for them, but to use the word shady is an understatement. I chose to not publicize the 6-month, never-ending ordeal.
Samer sure loves his BofA. I just wrote what I got from wikipedia, which says: “Bank of America is the largest commercial bank in the United States measured in deposits (although Citigroup has higher assets worldwide), and the third-largest company in the world by the 2006 Forbes Global 2000.” Maybe you ought to go and edit the entry…
But ING has Peet’s Coffee. That’s worth at least 0.5% in interest.
ING has Peet’s Coffee? I have to check that out. I happily bank with Orange County Teacher’s Federal Credit Union (OCTFCU). If you live in OC, I highly recommend. Hey Eddy, you should post about traditional IRA’s and Roth IRAs. It’s helpful to know!