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How’s it going today guys welcome back to the channel i hope you’re having a great day so far so in this video i’m going to be doing a follow up to a video i did i believe it was about a week and a half ago talking about don’t put your money in the bank why you shouldn’t be putting your money in the bank and that video pretty much went viral for this niche that
I’m in here so i didn’t get millions of views but i know we’re up over a hundred thousand views on that video so for those of you who found that video and you know found my channel welcome to my channel i’m glad to have you guys here but i honestly did kind of a disservice in that video first of all i thought that was going to be a quick you know five to ten minute
Video it ended up being like almost twenty minutes and i still left a lot of details out and so i wanted to do this follow-up video here and talk about what are the other options out there as far as putting your money in something outside of a traditional bank account because there are other options aside from the option that i pointed you guys towards which was
Investing in short term bonds particularly treasury bonds and so a lot of people had some very valid questions from that video so i’m hoping to answer that in this video talking about what are some of the best options out there for your short-term cash alright so starting off here with option number one we have online bank accounts and the most popular one out
There is allied bank ally bank is offering you a two percent yield on your savings account which is a very attractive yield for a bank account and so i want to talk about why is it that allied bank is able to pay 2% meanwhile your traditional bank your traditional brick-and-mortar bank is paying you about 0.06 percent right now well reason number one for that is
The fact that online banks are handling everything online they do not have any branch locations they do not have any atms that they have to maintain everything is handled online and as a result there is some massive savings involved with that but there’s also pros and cons to that some people go to the bank to get checks printed or they go to the bank to socialize
Seriously i mean literally i go into my bank sometimes and there’s just people hanging around there it’s like social hour for them but whatever some people that’s where they go to socialize so there are all these other perks involved with having you know a physical bank and for some people that might be worth that very small yield that you’re getting from that
Bank account so online banks are typically able to offer lower fees and higher rates simply due to the fact that everything is handled online they are fdic insured just like a regular bank account they are also offering you pretty much three business day access to your funds and you’re going to be taxed at ordinary income the reason why i’m telling you guys that
Is because option number four over here what we discussed in that video you’re gonna have a slight tax advantage with that so the interest paid to you is taxed as ordinary income and if you’re kind of confused by that if you’ve never gotten a tax form from your bank it’s because unless your interest income exceeds ten dollars for the year they’re not required to
Send you that form you are still supposed to report that income but if you receive more than ten dollars of interest income from your bank they’re going to be sending you that tax form so that is pretty much what allied bank and other online banks offer there are a number of different ones and graham steffen did a really good video talking about them so i’m gonna
Link to his video in the description below if you’re looking to learn more about these online bank accounts all right option number two where most people stick their money where is pretty much the worst place for your money aside from putting it under your mattress is your traditional bank account but again a lot of people do this for convenience they want to be
Able to go into the branch they want to be able to get access to their money through atms they have checks all the time that they want to cash or maybe they’re operating a cash business where they have to get cash into their bank you know there’s a lot of reasons why you would want to have a traditional bank account but a lot of millennials in particular you know
They’re not using these services they’re doing mobile deposit on their phone they pretty much are like allergic to cash i like personally i never have any cash so if you’re one of these people then an online bank might make sense for you but if you still have a lot of cash that you’re using and you like going into the bank this makes sense for you you have fdic
Insurance the same three-day hold on you know transfers and funds like that and it’s going to be taxed as ordinary income but most people are not going to make you know more than that $10 threshold their bank is going to be you know sending you that form reporting that income to view and the irs all right option number three that kind of got everyone started on
This whole conversation is robin hood and this 3% checking account that pretty much there’s no trace of anywhere on the internet now if you go on their website now it simply says robin hood cash management coming soon and there are absolutely no details and that is because of the fact that there was a lot of backlash after robin hood announced that they were
Going to be offering there’s 3% checking account because they claimed it would be s ipc insured so fdic is what ensures bank accounts si pc ensures brokerage accounts and they were claiming that they were going to have si p and si insurance of your money because they were a brokerage account but there was one loophole or one thing they overlooked and that is the
Fact that si pc protects your money for potential investments so the cash that you have that’s going to be invested and also your investments they’re not protecting you from losses but they’re protecting you in case you know the brokerage company goes insolvent they lose access to your stocks or bonds or securities and they lose your money you have a certain
Amount of protection but the thing is this money that you’re putting in robin hood is very clearly not being used for the purpose of buying securities and so si pc said we’re not insuring it so basically robin hood realized that if they’re not going to be insured nobody’s going to be putting their money into this fintech startup company that’s you know very very
New with a very limited track record you’re not going to be putting a lot of money into this when you have no insurance and so they’ve pretty much taken massive steps backwards on this and removed all traces of that 3% all right option number four what i discussed in that video is investing in short term bonds and what i told you guys about was a platform called
Betterment that offers a feature called smart saver and if you guys are interested in checking this out i have a link for in the description below it is an affiliate link you guys don’t have to use it but understand that if you do you know it helps me out and helps to support my channel but a smart saver is basically invest your money it’s taking the excess cash
From your bank account and putting it into very low risk short term bonds 80% of your money goes into a short-term treasury bond fund and the remaining 20% goes into another short-term bond fund that is composed of short term investment grade corporate bonds and so basically by doing that what they are able to get you right now after fees is a yield of 2.0 9% so
It’s slightly better than what is being offered by ally bank it’s a hell of a lot better than what you’re being offered at your traditional bank and yes you know robin hood is offering you more than this but this is not quite over yet so this might be a good option for people looking to protect the buying power of their money but there are a couple of things that
You have to know first of all you are not fdic insured urs ipc insured meaning you are not insured against any losses incurred with that investment but if for some reason you know betterment lost your investments or lost the cash that you’re going to invest you are insured up until a certain dollar amount beyond that the other difference here between these is that
The transfer time for moving money between your accounts is four to five days a little bit longer than these other options out there but there is one huge advantage here with smart saver and that is the fact that 80% of your money and smart saver is being invested in short-term us treasury bonds and us treasury bonds are exempt from state and local taxes whereas
Any kind of interest income from an online bank or a traditional bank it’s going to be taxed as ordinary income so the returns that you’re getting from smart saver are going to be taxed just on a federal level not on a state or local level resulting in tax savings here and maybe if you have a very small amount of money you know this isn’t a lot to you but if you
Have you know tens of thousands or hundreds of thousands of dollars in cash that could actually start to make a difference and then beyond that the other huge difference here between investing in smart saver investing in short term bonds versus leaving your money in the bank is the fact that banks are not going to keep up with the rising interest rate environment
That we are in now we just saw our fourth rate hike for the and what you’re going to find is that you’re going to immediately see a higher return here with smart saver because you are owning short term bonds and as soon as you see interest rates go up short term bond rates are going to go up as well meaning that as interest rates are rising your yield is going to
Increase banks on the other hand set their own rates now we know that in 2017 i believe banks were paying 0.05 percent and on average now that’s been raised to 0.06 so you know there’s a little bit of movement there but not nearly as much as is needed and while a lie bank is paying 2% and it’s fdic insured while that is great there’s no guarantee they’re going to
Increase that to 2.25 or 2.5% as interest rates rise we certainly hope they do but banks set their own rates at the end of the day and in a rising interest rate environment you could potentially end up getting left behind as rates are rising so that is the big difference here if you want complete security you go fdic and if you’re a young person who doesn’t
Necessarily need to go into a bank online banks are a fantastic option if you want to go to the bank to socialize and get checks and you know deposit cash then you got to keep your bank account maybe you put your slush or your extra into an online bank account if you’re comfortable with the very small amount of risk involved with short term bonds and just so you
Guys know treasury bonds are considered to be the safest investment out there outside of you know bank insured investments if you’re comfortable with that very small amount of risk there are many advantages to investing in short term bonds and it’s pretty much guaranteed protection of your buying power because it’s going to be increasing as rates increase as well
But anyways guys i just wanted to go over this and cover the main differences between traditional bank accounts online bank accounts and then this smart saver being offered by betterment just because i feel like i really didn’t cover it that well in that original video but anyways guys that’s all i got for this video i have a link down below if you guys want to
Check out smart saver i also have some other resources i’ll include as well but thank you guys so much for watching and i will see you in the next video
Transcribed from video
Ally Bank vs. Robinhood Checking vs. Traditional Bank vs. Smart Saver By Ryan Scribner
