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Arzu Rezvani (4:04)

Let'S start.

Unknown Host (4:05)

With what the options are. If you have money that you want to put in savings, I mean, there's the traditional kind of savings account, right, where you earn some interest on your deposits and also a certain amount of that money is insured by the federal government, right?

Arzu Rezvani (4:21)

Yeah, that's right. I mean, I think one of the easiest ways, and maybe the best place to start, is to take a look at your savings account. And this might be an account that you started years and years ago when you were really young. Maybe this is an account that you haven't checked in on in quite a while. And take a look at what kind of interest you're accruing there. It's not uncommon. If you have an account at a very big bank that you will be getting an interest rate of like 0.01%. So not all savings accounts are created equal.

Unknown Host (4:55)

Why is that?

Arzu Rezvani (4:56)

So a couple of different things. So bigger banks, they can afford to offer really skimpy rates. When you look at some of the smaller banks or credit unions, you know, they're smaller institutions and so they want to bring in more cash and more deposits and more depositors. And so they will do that by promoting better interest rates. So that's why you will often see at smaller banks interest rates of 3.5%, 4.5%.

Unknown Host (5:28)

And is this kind of a rule across the board that like, smaller banks will offer better interest rates or bigger banks won't?

Arzu Rezvani (5:34)

At this point, it is pretty common that you will see smaller banks offering better rates and bigger banks not offering as competitive a rate.

Unknown Host (5:44)

Okay, what about online banks where there's no brick and mortar location to go into? I've heard that those also offer better interest rates. Is that true?

Arzu Rezvani (5:53)

Yeah, that is true. And the reason why is because a lot of these online banks, they don't have to maintain those brick and mortar kind of locations. And so what money they're saving on that end, they're able to kind of offer you back in the form of better rates. So you want to be careful with those. You want to make sure that they're FDIC insured, that it has government backing. But for the most part, yes, they are offering better rates because they don't have to maintain those brick and mortar sites.

Unknown Host (6:25)

So if you're looking for a savings account that is going to offer you a better interest rate, where should you start? Just an online search?

Arzu Rezvani (6:33)

Yeah, I think there are several websites that are good places to go. So NerdWallet is one. DepositAccounts.com, bankrate. Those are some really good, reliable, reliable websites you can go to to get a lay of the land, to get a sense of what's out there. You know, are there minimum deposits you have to put in in order to benefit from high interest rates? What is in the fine print? Are there any kind of hidden fees associated with moving your money from an outside bank to maybe a new one that's offering better rates? Those are websites that can kind of help you navigate all of that.

Unknown Host (7:15)

Does it make sense to just move all of your savings to the bank with that offers the highest interest rate? Why wouldn't you want to do that?

Arzu Rezvani (7:22)

I mean, you certainly could. I think it depends on how much money you're working with. If you have more than $250,000, which sounds like a lot of money, but at some point in your life, you might come upon it, whether that's because of a sale of a house or an inheritance. But if you're coming, if you're dealing with more than 250,000 DOL, you don't want to put that all in one institution because after $250,000, the FDIC will not insure that. So if you have more than that, you want to spread it around.

Unknown Host (7:53)

I wonder how much can you make? If you make the Switch to a higher interest savings account.

Arzu Rezvani (8:01)

You know, it's not going to be life changing. Right. I mean, if you stay at some of the bigger banks, you're making something as little as.01%, which is pennies. You know, I talked woman who told me that she had been making 12 cents a month by keeping her her money at the bank that she had always held an account in. And so she opened up a new account at another bank and all of a sudden was making, you know, 4%. Now, 4% isn't a lot of money, but the point is not to, you know, score the big bucks. The point is to not lose money to inflation. And also that money adds up over time.

Unknown Host (8:47)

Yeah. So if she had $10,000 in the bank, she could go from making pennies to making a few hundred dollars.

Arzu Rezvani (8:55)

Exactly.

Unknown Host (8:56)

And that's a year, right?

Arzu Rezvani (8:57)

That is a year. Right.

Unknown Host (9:00)

Okay, so we've been talking about savings accounts. What else can people do to earn money on their savings besides like through interest in a traditional savings account?

Arzu Rezvani (9:13)

So you can make other investments that are not super risky. You know, it's not going to be the kind of risk you take on with the stock market. One of the better options is a certificate of deposit or a CD. CDs are basically a lump sum deposit that you essentially loan to a bank for an extended period of time. It can be nine months, it could be several years. It's really up to you. It's typically the longer you put it in, the better the interest rate you get back. Now there's an upside and a downside to this, Right. You get the better rates. Typically the longer the term, the higher the interest rates. The downside is that you can't withdraw your money for an extended period of time without paying a penalty. With savings accounts, you have access to that money at any time. With CDs, you can't touch it unless you're willing to pay a penalty for an extended period of time. So if you have your emergency savings all set up and you feel secure, you feel comfortable, and you have some excess savings that you want to use to put to work, CDs are a really great way to go. And one other thing I will say about this because I don't think it's as simple as, you know, you won't be able to touch your money for, for nine months or 12 months, what something you can do is a CD ladder. And what that basically is, is, you know, instead of giving all of your money in a lump sum over to a certificate of deposit, you stagger that investment. So you might put in, you know, 5,000. Now, in six months, you'll put in another 5,000. And that allows you to tap into those amounts at different periods of time. So it's not all gone for an extended period of time.

Unknown Host (11:03)

I've also been hearing a lot about government bonds. A lot of people have been investing in them. Can you talk about how those work and how they kind of figure into your options for your savings?

Arzu Rezvani (11:13)

Yeah, sure. So the government issues bonds when they want to raise money for projects like infrastructure projects. When you buy a bond, you're basically lending the government money, and the government agrees to pay you back that money at a later date plus some interest. This was the hot investment of 2022. I bonds were paying an annualized rate of 9.62%, which is really high. And I bond stands for the I stands for inflation.

Unknown Host (11:46)

So you just like buy them from the Treasury Department. How does this work?

Arzu Rezvani (11:50)

Yeah, so what you'll need to do is you'll need to set up an account with treasurydirect.gov and once you're there, you link it to your bank account to transfer however much money you want to purchase. The max is $10,000. And then from there it's pretty simple. And you can check back in regularly to see you know, what kind of interest you're accruing and what does that look like in dollar amounts. I will note, you have to be very, very careful about entering your account numbers because getting that fixed is a very long, drawn out process that involves snail mail. So just be very careful when you put in your account information. But it's very simple. I mean, I have done it. You can do it within minutes.

Unknown Host (12:36)

And with I bonds, is there a set amount of time before the Treasury Department will pay you back?

Arzu Rezvani (12:42)

The soonest you can cash out, your I bond is at the 12 month mark. You will lose a few months of interest for withdrawing. At that point, it's really only after five years that you can cash out without any penalty.

Unknown Host (12:55)

Okay, so for all of these things that we've talked about, a savings account where you're earning interest, or an I bond or a cd, will you be taxed on the money that you make?

Arzu Rezvani (13:08)

You will, yes. But there are some advantages here. For I bonds, for example, your earnings are tax free at the state and local income levels. For federal income tax, it can be deferred until you cash in on the bonds. So, you know, if you plan to hold onto a bond for 30 years and you want to cash out when you're retired, you're going to belong presumably to a different tax bracket and so it might really work out for you to keep it as a long term investment and to cash in later in Life. Interest on CDs are also taxable. However, if you purchase CDs through a retirement account, a 401k or an IRA, you can avoid paying taxes on CD interest, at least in the near term.

Unknown Host (13:58)

Do you need to have a lot of money to do all this?

Arzu Rezvani (14:02)

So I think it's really important, no matter how much money you're making, to always be aware of the different ways your money can be put to work. It doesn't matter if you're making an hourly wage and a very modest paycheck or you're living a very comfortable life. I think it's always good to just be aware of where your money is, what kind of work it's doing for you, and what your options are.

Unknown Host (14:25)

All right, Arzu, thank you so much. This has been really, really helpful.

Arzu Rezvani (14:29)

Oh, my pleasure.

Unknown Host (14:32)

Okay, time for a recap. Check to see how much interest your money is earning in a savings account and consider switching to an account that pays more often. These will be smaller or online banks. You'll just want to make sure that they're FDIC insured. Savings accounts with a high interest rate are a good place to put your emergency savings what you'd need if you lost your job or you had an unexpected expense. If you have additional savings that you won't need to tap into immediately, consider a certificate of deposit. It's a loan to a bank for a certain period of time, and those will often offer higher interest rates than savings accounts. You could also consider government bonds for money that you're saving up longer term. Some of them, like I bonds, actually pay higher interest when inflation goes up, but you can't cash in for at least 12 months and you lose interest if it's been less than five years. In general, whether you have a lot of money or a little bit, you want to do what you can to protect it against inflation.

Unknown Host (15:30)

And as you can see, you have options.

Mariel Segarra (15:35)

For more Life Kit, check out our other episodes. We have one on weightlifting and another on how to recover after a tough workout. You can find those@npr.org LifeKit and if you love Life Kit and you want even more, subscribe to our newsletter@npr.org LifeKitnewsletter Also, if you have episode ideas or feedback you want to share, email us@lifekitpr.org this episode of Life Kit was produced by Sylvie Douglas. Our visuals editor is Beck Harlan and our digital editor is Malika Garib. Megan Kane is our supervising editor and Beth Donovan is our executive producer. Our production team also includes Andy Tagle, Claire Marie Schneider and Margaret Serino. Engineering support comes from Simon Laszlo Jansen. I'm Mariel Segarra. Thanks for listening.

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