Is My Free Savings Account Costing Me Anything?

Hey everyone, thanks for joining me for this week’s Monday Money. I’m , the guy behind this column and I like to talk about various things here. Today, I’m going to go over a bit of an unorthodox topic. The fact of the matter is, many banks boast about free savings accounts. But, what is the underlying cost of taking advantage of one of these “Free” accounts? And, once you know the underlying cost, is it worth using one?

This topic came up as I started to invest a month or so back. I wrote a review of Betterment here. While I was doing research for the article, I was wowed by the offer that Betterment was providing. I wrote another article here that discussed my options. And, you, the readers helped me to make my decision through the comments. Long story short, I opened a Betterment account and have been happy with it since.

A few weeks after opening my betterment account, I started to look at other financial accounts I had. Mainly, I was looking at my free savings account. For a couple of years now, I’ve been putting money into this savings account and watching it stack up. Happy with how much I was saving, I didn’t really think about whether or not that money was actually being saved, or if it was costing me something for that money to be there.

I started to think of inflation. I mean, my job has an inflation based raise that they give me and other employees. However, when inflation happens, my money in savings doesn’t grow because of it. This presented me with a very important question. The question was, “Am I loosing money every time I put something into savings?”.

To answer that question, I had to look at the interest I was being paid. The APY on my savings account was .2%. Not great at all, but given the current savings market, it’s really not that bad at all either. Then I had to look at average annual inflation rates. On average, in the US, inflation rates run from 1.9% to 3% a year.

Looking at the numbers, I realized that there was a major problem with my savings strategy. Even though I wasn’t actually loosing money, in the long run, the money is lost. What a weird statement! Let me break it down. If my dollar today is enough to buy say a candy bar, and over the next 5 years, that candy bar costs me more than a dollar, the money I saved over the last 5 years has lost a bit of value. Well, every time we put money into a savings account, this is exactly what happens. The bottom line is, rates in savings accounts just don’t match up to inflation rates. So, to answer my question in the beginning, yes, I am loosing money by taking advantage of the free savings account options or even paid savings accounts for that matter.

However, Betterment has taught me that with the same money in an investment account, I can actually be making money. I’ve earned over 3% in 1 month and 6 days. That’s a return that definitely beats the rate of inflation in the US, therefore, allows me to not only save but make money. Therefore, I will no longer be keeping any of my money in savings, it’s all going to Betterment.


I am not telling you to invest your money instead of saving it. The reality is, I am not an active series 7 financial advisor. So, to give you advise like this would be illegal. On the other hand, this is my personal story. This is what I learned about free savings accounts, investment accounts and inflation. It is up to you to use this information and make an informed decision as to what you are going to do with your money. If you’re not sure what to do, I would strongly advise speaking with a representative at your local bank or your financial advisor.

Reader Question

Do you use savings accounts or investment accounts? Are you able to point out any flaws in my thinking that may be a reason for me to change my final decision?

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