Starting a savings account / emergency funds

[sc1988]

I will be starting residency in July, and from what most people are advising, it seems like the consensus is to have an emergency fund of 3-6 months of expenses. I wanted to create a savings account that would accommodate for that. I was looking at online savings accounts, and they tend to have higher interest. The only issue is on transferring funds. My bank currently charges 25$ per external transfer. Is there any way to avoid that? Can I just write a check to myself and deposit it to the savings account? What is the purpose of a wire transfer? Is it so that my funds will be rapidly available after transfer? With transferring money to my savings, there isn't a sense of urgency and I don't have an issue with waiting. I hope this made sense; I know very little about banking / finances and I'm trying to learn all of it.

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[LucidSplash]

I think that charge is if you inititiate your transfer via your bank. I use an online savings account and the transfer is initiated via the online savings bank and there is no charge. I'm using AmEx savings at the moment but this is has been the case with all of them I've ever used.

 

[FlowLimited]

The fact that the charge is $25 makes me think they are referring to a wire transfer. The standard Automated Clearing House (ACH) transfers between personal accounts held at different banks are usually free or close to free. The main difference between the two types of transfers is speed. Money sent via a wire transfer is available within minutes while ACH transfers typically take a few days. If your bank is truly charging that much for a ACH transfer then I would recommend changing banks.

 

[colbgw02]

Yeah, $25 fee for an ACH transfer is absurd. Some savings accounts will cap the number of free transfers in a cycle, but the fee for additional transfers should still be way less than $25. Checking account ACH transfer are not capped, in my experience.

OP, if possible, use USAA for banking. They're not great for everything, but they know how to handle banking accounts. Every time I've ever had to interact with another bank, I'm grateful I'm with USAA.

 

[gutonc]

Wire transfer and ACH transfer are 2 different things. Don't worry about this.

 

[Bobblehead]

Wire vs. ACH transfers have to do with the availability of funds. That's generally buried in the account agreement that is associated with your account. For virtually all transactions ACH, which is generally free/included, is sufficient. Only rarely is a wire transfer actually needed, for example if you are closing on a house and plan to "transfer" (aka wire) the funds from your account to the agent/attorney/seller the day of the closing.

Be aware that for a true savings account you will be limited in the number of withdrawal transactions you can perform each month, generally 6. If this is a true emergency account you won't have to worry about it. If it's a combined checking/savings/emergency account you may be better off with a high yield checking account.

 

[curiousme23]

Or use something like Save Money with Free High Yield Online Savings Accounts | SmartyPig
Simple hook it up to your bank account and schedule a recurring transfer to this piggy bank. They provide decent interest rate on your savings as well with 0 fee.
6 withdrawals/6 deposit are allowed per statement which should be good enough for your case.

 

[Siggy]

So I have Ally Bank for my emergency/excess cash fund (1% interest) with my checking account through Bank of America (I also keep a small savings account at BoA). If BoA does the transfer, then it looks like I'd get charged money. Having Ally initiate the transfer (both transferring to and transferring from Ally), then it's free.

 

[gutonc]

So I have Ally Bank for my emergency/excess cash fund (1% interest) with my checking account through Bank of America (I also keep a small savings account at BoA). If BoA does the transfer, then it looks like I'd get charged money. Having Ally initiate the transfer (both transferring to and transferring from Ally), then it's free.

Yeah...but that's because BoA are a bunch of scamming douchecanoes.

My credit union doesn't charge me to transfer to my Ally account regardless of which way it is set up.

 

[mimelim]

The best thing I ever did with my personal finances was move everything as far away from Bank of America as was possible.

 

[LucidSplash]

Kind of a tangent but can you share more about your hatred of BoA? I'm moving to a different state soon and will need to change banks; BoA has a big presence around the hospital in my new city and it seemed like the most convenient option. Perhaps I have missed some kind of scandal? I know about the settlement having to do with Merrill Lynch/BoA last year but it sounds like maybe you have experienced some other issues?

 

[gutonc]

Kind of a tangent but can you share more about your hatred of BoA? I'm moving to a different state soon and will need to change banks; BoA has a big presence around the hospital in my new city and it seemed like the most convenient option. Perhaps I have missed some kind of scandal? I know about the settlement having to do with Merrill Lynch/BoA last year but it sounds like maybe you have experienced some other issues?

Do you even need to go into a bank these days? I use a local credit union. Been with them 10+ years. Haven't actually been into a branch 10 times.

BoA, Chase, Wells Fargo...they're all crooked/shady and have no interest in you, aside from separating you from as much of your money as possible, in order to do things that don't cost them anything.

 

[LucidSplash]

Do you even need to go into a bank these days? I use a local credit union. Been with them 10+ years. Haven't actually been into a branch 10 times.

BoA, Chase, Wells Fargo...they're all crooked/shady and have no interest in you, aside from separating you from as much of your money as possible, in order to do things that don't cost them anything.

No but I need to go to the ATM occasionally and I get paper checks that I need to be able to deposit ideally using a phone app. I really only need a checking account to direct deposit my paycheck into. Technically I could keep the bank I have now but if there was ever an issue and I needed to see a real person about it I'd have to drive like 15 hours to get to one.

 

[gutonc]

No but I need to go to the ATM occasionally and I get paper checks that I need to be able to deposit ideally using a phone app. I really only need a checking account to direct deposit my paycheck into. Technically I could keep the bank I have now but if there was ever an issue and I needed to see a real person about it I'd have to drive like 15 hours to get to one.

I lived 2000 miles from my credit union for 15 years. Never had an issue.

I should also point out that this was in the 90s...when direct deposit seemed like magic. Let alone online/mobile banking.

 

[smq123]

No but I need to go to the ATM occasionally and I get paper checks that I need to be able to deposit ideally using a phone app. I really only need a checking account to direct deposit my paycheck into. Technically I could keep the bank I have now but if there was ever an issue and I needed to see a real person about it I'd have to drive like 15 hours to get to one.

I use Schwab, which doesn't have a physical presence. But they reimburse all ATM fees, have a phone app, and have good online and phone customer support if I need them. It hasn't been a problem.

 

[LucidSplash]

I use Schwab, which doesn't have a physical presence. But they reimburse all ATM fees, have a phone app, and have good online and phone customer support if I need them. It hasn't been a problem.

Thanks. Will look into them.

 

[NotAProgDirector]

To be contrarian, I use BoA and I'm really happy. I have no fees for anything. Online BillPay works great. ATM's everywhere, no need to get reimburements (although if they are automatic with Schwab, that's sexy). Branch right in the hospital, so super easy to get a human to do anything I need. YMMV.

 

[ThoracicGuy]

Kind of a tangent but can you share more about your hatred of BoA? I'm moving to a different state soon and will need to change banks; BoA has a big presence around the hospital in my new city and it seemed like the most convenient option. Perhaps I have missed some kind of scandal? I know about the settlement having to do with Merrill Lynch/BoA last year but it sounds like maybe you have experienced some other issues?

I had any account there for over twenty years... They finally made me close it when they started charging me fees on the account after they switched it to another type of account without my permission.

I've used PNC Bank the last five plus years and have been happy. They have some accounts that have free ATM fee reimbursement, online app and decent rates if you meet certain criteria each month.

 

[sazerac]

USAA bank also automatically reimburses ATM fees and has mobile banking deposits. Literally every ATM in the whole country is free with either Schwab or USAA.

 

[mimelim]

Kind of a tangent but can you share more about your hatred of BoA? I'm moving to a different state soon and will need to change banks; BoA has a big presence around the hospital in my new city and it seemed like the most convenient option. Perhaps I have missed some kind of scandal? I know about the settlement having to do with Merrill Lynch/BoA last year but it sounds like maybe you have experienced some other issues?

I don't hate BoA. I don't think that they are inherently worse than most of the other big banks out there. I had an account with them that my parents opened for me when I was 14 years old and used it up until ~3 years ago. Super convenient ATM locations and since most of my family was using it, it was just easy. But, the sense that I have gotten in the last ~5 years is that they are looking for ways to make little bits of money off of me. The random fees that crop up were ridiculous. I had to correct maybe 5-6 fees assessed to me incorrectly. And then there were the half a dozen other times where they charged me for things that I didn't want but didn't explicitly tell them no to and missed the paper warning about that they sent. Again, don't think that they are evil or even bad. They are running a business, but there are better banks out there for what I need. I don't like how much attention I need to keep to make sure they don't over charge me. It just isn't worth it. Now with Schwab and Fidelity and haven't looked back. Personally, I would never recommend BoA because of the nickle and diming with fees. It is well documented how much they make off of people. I can't remember the popular press that they were getting, but it was like 7-8% of their total revenue was from those little random fees and that ~20% of customers had at least one of those unexpected random fees each year.

 

[drk]

I had any account there for over twenty years... They finally made me close it when they started charging me fees on the account after they switched it to another type of account without my permission.

I've used PNC Bank the last five plus years and have been happy. They have some accounts that have free ATM fee reimbursement, online app and decent rates if you meet certain criteria each month.

I use PNC as well and have been very happy with them. I have not been able to meet all their criteria for some of their perks (discounted/free safe box if available) if you keep a certain amount in your account etc.

I honestly only go into the physical branch when I need some free notary for various forms.

 

[gutonc]

I honestly only go into the physical branch when I need some free notary for various forms.

Almost completely unrelated, but check with your GME office on this issue. All 3 of my residency program staff (PC and 2 assistants), as well as about half the GME office staff were notaries. Where I work now, nobody was and it was a PITA. I made a big stink about it and the group paid for our office manager and one of the front desk staff to get certified.

 

[link2swim06]

In my opinion...

Short-term Savings/Checking --> Go with Ally Bank
Longer term savings/ Retirement --> Go with Vanguard

Both have super low fees (or none). They do exactly what you want (and you need).

I'd avoid keeping much money at all in a savings account. You can park most of that money in bonds or something else in a Vanguard account that will have an interest rate that can at least match or exceed inflation. Let's face it...a savings account rate of 1% per year is negative when you account for inflation.

I can't think of any "emergencies" where you would need cash within a few days that couldn't be covered on a credit card. Beyond a few days you could easily make some of your investments liquid and be cash in your checking account.

 

[Siggy]

I'd avoid keeping much money at all in a savings account. You can park most of that money in bonds or something else in a Vanguard account that will have an interest rate that can at least match or exceed inflation. Let's face it...a savings account rate of 1% per year is negative when you account for inflation.

The problem right now is that you're either going to not be making that much more than 1% (i.e. short term bond funds), or you're going to include a mix of long term bonds in your bond fund and face more interest rate risk than an emergency fund should be exposed to... given that we already know that interest rates are increasing at least another 0.5 % this year. Using Vanguard, their total bond market ETF (BND) has only had a return of 0.36 over the past year and 2.58 over the past 3 years. Their short term bond fund (BSV) is at 0.38 and 1.27 respectively and intermediate bond fund (BIV) is at 0.07 and 3.26.

Now isn't the time to be using bonds in the place of a guaranteed 1% return on an online savings account or the fact that BND is going to be charging you 0.06% and BIV/BSV 0.09% to hold your money for you every year (expense ratio, which is basically rock bottom, but in this case will eat into the already low results).

I'm not saying that bonds don't have a place in a portfolio, just that it's not an emergency fund replacement.

 

[link2swim06]

The problem right now is that you're either going to not be making that much more than 1% (i.e. short term bond funds), or you're going to include a mix of long term bonds in your bond fund and face more interest rate risk than an emergency fund should be exposed to... given that we already know that interest rates are increasing at least another 0.5 % this year. Using Vanguard, their total bond market ETF (BND) has only had a return of 0.36 over the past year and 2.58 over the past 3 years. Their short term bond fund (BSV) is at 0.38 and 1.27 respectively and intermediate bond fund (BIV) is at 0.07 and 3.26.

Now isn't the time to be using bonds in the place of a guaranteed 1% return on an online savings account or the fact that BND is going to be charging you 0.06% and BIV/BSV 0.09% to hold your money for you every year (expense ratio, which is basically rock bottom, but in this case will eat into the already low results).

I'm not saying that bonds don't have a place in a portfolio, just that it's not an emergency fund replacement.

If you are buying the ETF it doesn't really matter if it is short or long term. There are several vanguard bond ETFs (BLV, VCLT, etc.) that have had a return average well over 1% (actually around inflation).

The idea of an emergency fund has been around long before credit cards (which can temporize an emergency while liquifying money). It seems a bit outdated to have large amounts of money sitting in a savings account (i.e. 6 months of expenses). Take a $50,000 emergency fund, if it was in a bond ETF that made 1% greater than the average savings account (over several decades)...you would end up with >$20,000 more at retirement age (in 35 years).

But to each their own. Certainly many "financial planners" would agree with you...just doesn't make pragmatic sense to me.

 

[Siggy]

If you are buying the ETF it doesn't really matter if it is short or long term. There are several vanguard bond ETFs (BLV, VCLT, etc.) that have had a return average well over 1% (actually around inflation).

The idea of an emergency fund has been around long before credit cards (which can temporize an emergency while liquifying money). It seems a bit outdated to have large amounts of money sitting in a savings account (i.e. 6 months of expenses). Take a $50,000 emergency fund, if it was in a bond ETF that made 1% greater than the average savings account (over several decades)...you would end up with >$20,000 more at retirement age (in 35 years).

First, when I say "long term" or "short term," I'm talking about the type of bonds held in the fund, not how long I'm personally going to hold the fund. BLV (Vanguard's long term bond fund ETF) has a 1 year return of 0.91% and a 3 year return of 5.46. Again, giving raising fed rates, I think the 0.91% is going to be more representative of the current returns than the 5%. As it is, once we have a fed rate that isn't, for all intents and purposes, zero, it would make more sense to go for the longer duration funds. Alternatively, do you think interest rate risk is not important?

I don't know about which credit card you have, but I think the rate on my credit card is something around 20%. I've never -not- paid off my balance in full, and I'd like to keep it that way. I do count my CC as a part of my emergency fund, but it's not going to be my first weapon if I ever need it (ignoring being able to basically defer costs for a month when the account is paid in full, but that's more of an "I need to repair my car" emergency than an "I'm out of work" emergency).


I do agree that it's prudent to chase higher rates... which is why I've got some of Ally's 1.25% no risk CDs (Christmas special they had) and the vast majority of my emergency fund at Ally's regular account. There's also a reason I invest the money I have beyond my emergency fund at Vanguard... which is to make more money. However, when it comes to an E-fund, the old idiom, "1 in the hand is worth 2 in the bush" comes to mind.

 

[dpmd]

To be contrarian, I use BoA and I'm really happy. I have no fees for anything. Online BillPay works great. ATM's everywhere, no need to get reimburements (although if they are automatic with Schwab, that's sexy). Branch right in the hospital, so super easy to get a human to do anything I need. YMMV.

Yeah, I have had a decent experience with BofA as well. Probably because when I no longer qualified for free student checking I had free checking because of direct deposit, then free because I had a mortgage with them, and now free and preferred status (giving me some nice features like a bonus on credit card rewards, discounted loan rates, free stuff like foreign currency and cashiers checks) because of the combined balances in my accounts (including money in merrill lynch). I do have online bank accounts(with capital one and goldman sachs, though each started out as a different company) as well, but discovered that getting a large amount of money out quickly can be an issue so I was glad to have kept a bank I could easily walk into a branch with. My preferred status also gets me ATM reimbursements for the rare occasion it is needed. But for the regular shmo without direct deposit and occasionally overdraws the account which doesn't have much in it at any given time it won't go well.

 

[Raryn]

To be contrarian, I use BoA and I'm really happy. I have no fees for anything. Online BillPay works great. ATM's everywhere, no need to get reimburements (although if they are automatic with Schwab, that's sexy). Branch right in the hospital, so super easy to get a human to do anything I need. YMMV.

I use Chase and am really happy. Have been hit with like one fee ever (which was promptly reversed), it's available everywhere, and it's nice for my primary account in case I need to stop by a physical branch (happens rarely, but it does happen).

I also have a Schwab checking account and it does automatically refund all ATM fees everywhere in the world.

Best of both worlds.

 

[Bacchus]

I use Citizens Bank as my brick&mortar. I have Discover (like the CC) Bank for checking as well. Citizens Bank was charging a foreign ATM fee on top of the ATM fee to use the machine. Discover doesn't do any of this as long as you use an approved ATM (which is not hard to find in this this Wawa-laden area). I went to a bank since starting residency (4 years ago) for 1) To cash my first check (direct deposit was pending) and 2) To withdraw a bank check for closing costs (for a mortgage broker 1000 miles away). Citizens has an excellent app that lets me do what I need to do.