- Let's see if this sounds familiar.
You have some money sitting in a savings account
and it's probably making next to nothing
and you're not really sure what to do.
You have several options.
One option is you could go to a
traditional bank like this behind me,
stick your money in a savings money market account.
Chances are they're not going to pay you anything.
If they were paying you something,
then you wouldn't be watching this video.
Today, what I wanna share with you are
what are seven alternatives to do with your savings
besides sticking it with a brick-and-mortar bank
and I'm also gonna share with you
a crazy story of where a client of mine
was keeping his cash.
You're not gonna believe where he was keeping it
and you're not gonna believe how much it was.
You're gonna find out all about this in today's video.
Check it.
(upbeat guitar music)
Let's go ahead and dive into it.
What options do you have other than
the traditional brick-and-mortar bank?
The first option that you have,
which is probably the easiest,
is some sort of online savings, some sort of online bank.
Probably five to 10 years ago,
it would've been absurd that you
would've trusted an online bank to put your money.
People couldn't even stand the thought
and I know there's still a lot of people
that feel very uncomfortable with the
fact of doing online banking.
The reality is, this is the present.
This isn't the future.
This is the present and if you're not with the times,
then it's probably time to start catching up.
There are so many different online banks.
Most of them are trustworthy and I
wouldn't even think twice about it.
I would definitely want to know
how long the bank has been around
and the big kicker is, are they FDIC insured.
If they don't have the FDIC insurance,
then you don't even wanna mess with it.
Some of the banks that I'm more familiar with are
Ally, CIT, Synchrony.
There are so many more online banks today
than there were a year ago, three years ago,
especially five to 10 years ago.
Just make sure that you do your research.
Why would you want to choose an online bank
versus a traditional brick-and-mortar?
A lot of the brick-and-mortar banks
offer online banking through their apps,
through their website,
so why do you even wanna mess with an online bank?
The reality is that because they
don't have these brick-and-mortar locations,
they don't have the overhead,
they don't have the cost to keep the bank going,
they don't have all the employees
at a traditional brick-and-mortar,
they don't have the real estate,
they don't have all the expenses that go along with that
so they should be able to pay you
a higher interest rate that you
would get at a traditional bank.
For example, I was curious to see
what does my bank pay on their savings account.
If I were to go open up a savings account
or a passbook savings and their savings accounts,
their passbooks savings rate starts at .05%.
That is correct, .05%, not 5%, .05%.
They will pay you a higher rate as
your account grows or as it gets to a higher balance,
but unless you have $50 to $100000,
then what they're paying you is next to nothing.
Let's compare this to an online bank.
I compared a ton of different online banks
looking at what their savings account rates were
and I found anywhere from .65% as high as .85%
is traditionally where you're seeing those rates
and I did see in some cases where
they are paying more than 1%.
I understand that 1% is still not a lot of money but,
in the certain interest rate environment,
would you rather get paid 1% of .05%?
To me, I wanna make as much money as I can
so pay me the higher rate.
Option number two seems a bit old school
but it still makes a lot of sense
for those that are interested.
What is option number two?
We're talking about US treasuries, correct, T-Bills.
For me, this might date me a little bit,
but I remember as a kid,
my parents or grandparents would buy me those savings bonds,
buy them in $25, $50, $100 increments
and that would be a birthday gift.
That is an option but you don't have
to go and buy these old T-Bills I used to get.
You can actually do this all online
and you can go to treasury.gov to buy these T-Bills.
Typically, they're going to pay comparable
than way you're going to see what CD rates are paying,
maybe a little bit higher,
they're a little bit longer term
than a one year CD or a two year CD.
Either way, it is still another option.
They're gonna pay you more than that .05%
than the traditional bank is gonna pay you.
Option number three.
Stick with me for a minute.
Option number three doesn't sound
like something that you would use for your savings account,
but if you have enough in your emergency fund,
this is an option you could consider but yes,
it does come with a little bit or a lot more risk.
What is option number three?
Option number three is buying
individual stocks but individual stocks
that focus on dividend.
Obviously just because a stock pays a dividend
doesn't mean that it won't drop in value.
That could happen.
Then again, if the stock is paying a 3% dividend,
4% dividend, or if you're looking at
some of these limited partnerships
that are paying seven, eight, nine, 10,
sometimes double digits in dividends,
then obviously that's paying a lot more
than the .05% or the .85% that you'd
find in online savings accounts.
That being said, this is a lot more risk
and this is something that I would
not put short-term money in.
This is money that I would be looking at at least one year,
preferably two to three years,
where I know that I didn't need the money.
I would not be looking at three months, six months, 90 days,
to put my money into a high paying dividend stock
and thinking that is the right thing to do.
If you're fine with more risk,
if you're fine with also the potential
of not just getting the dividend
but also getting appreciation in the stock
because you have a long-term perspective,
then a high dividend paying stock could be a good option.
Where are you going to do this at?
You can go to funny enough a traditional brokerage account
or a traditional brick-and-mortar brokerage firm to do this
or you can go to online options
and I've talked about all of these
different options on other videos so check those out.
You have E-Trade, Ally Financial, even Robinhood,
which you can buy stocks through Robinhood as well.
You have so many different options to buy these stocks.
Option number four is a little bit more traditional.
We're talking about what is the opposite of stocks, bonds.
When I started in the business and
becoming a financial advisor,
it was much more common for investors
to buy individual bonds.
People would buy 10 year bonds, 20 year bonds,
or if you're buying a municipal bond,
sometimes the maturity would be up to 30 years.
Back then when interest rates were a lot higher,
people didn't mind locking up their
money for 20, 30 years if they
were making eight, nine percent on their money.
Now it's not as attractive but still, bonds can make sense.
Most likely you're not going to buy individual bonds,
so what are you going to buy?
You can buy bond mutual funds.
Mutual funds have all their costs
and you have A sharers.
It's just you're gonna pay an up front commission
and you don't wanna do that and
if you're not sure about that,
you can watch my other video where
I talk about the five biggest rip offs
to avoid when it comes to investing.
I talk all about A sharers.
If you're not buying mutual funds,
if you're not buying individual bonds,
what are you buying?
What I would suggest is looking at ETFs.
You can buy different indexes, different bond indexes
on whatever maturity that you're looking for,
how much risk that you're comfortable with with bonds
because what people don't realize is that
just because it's a bond doesn't mean
that it's safer than a stock.
A lot of times, people think that stocks are
aggressive, risky, bonds are safe.
Not entirely true.
For example, two different ETFs that you could buy
that are two totally different types of bonds
are a high yield bond ETF or a municipal bond ETF.
What's the difference?
A high yield bond is one,
it's paying a higher yield because
there's more risk involved.
This is typically like a corporation
or a company that maybe has a lot of debt,
maybe their cash flow isn't were it needs to be
so they're paying a higher interest rate
so you're gonna get more at an investor's standpoint,
you're gonna get a higher interest rate
because there's more risk with that company
of that company going bankrupt
and you losing your money on your bond.
Yes, it's gonna pay you more but there is risk involved.
Compare that to a municipal bond and a municipal bond EFT.
A municipal bond is typically issued
by some sort of state government,
a city, a hospital, sometimes it's for roads,
it could be for new stadiums,
anything to do with typically municipalities,
which towns, cities, states, all that good stuff.
With these, they are traditionally are more safer.
Not as much risk but because of that,
you're not going to get as a higher return.
These are all the different things you want to factor in
and you don't have to buy the individual bonds
because now you can buy the ETFs.
I know what you're thinking,
Jeff, these sound great.
The last two options sound fantastic.
I just don't trust myself in picking the right stocks,
the right bond ETFs.
If I don't trust myself,
then what other options do I have?
That is option number five which is a blended portfolio.
Typically now we're looking at something like
a 25% stock, 75% bond, maybe 20% stock, 80% bond,
and we're utilizing ETFs to get us this portfolio blend.
Jeff, you just told me that I don't have to pick the ETF.
How am I going to build a blended portfolio
when I have no idea what I'm doing?
That doesn't really help me.
That's why we're gonna utilize a
platform like Betterment or Wealthfront.
With these two companies, these two investment firms,
you just choose your investment goal.
You choose what are you trying to accomplish
and most importantly, what is your timeline,
when do you need this money?
If you are choosing a timeline that is short,
three years, five years,
they're going to automatically place you
into a blended portfolio that is
far less in stocks, more in bonds,
so that you are taking a lot of the risk off the table.
You need to know this.
Just because you have 20% stocks, 80% bonds,
that doesn't mean that if we have
a market correction that you're not going to lose money.
You very well could lose money,
you probably will lose money,
but by having a blended portfolio
and having less in the market,
you should see a less drop than if you
were in individual stocks, individual bonds,
so that's why you choose that option.
Before I get to the last two,
I mentioned at the beginning of this video
about a client of mine.
Actually, not entirely true.
This is a former client of mine,
but one of the first meetings that we had,
he let me know that he had a certain
amount of cash that he was keeping in a quote "safe place."
Initially, he didn't tell me how much he had,
but then as we started talking more,
started going through all his other investments,
I come to find out, I learned this guy has
over a $140000 in cash,
I'm talking $140000 in cash like rolls and everything
in his safe in his basement.
140 G's in his safe in his basement
and I don't remember exactly how long
he had his cash sitting there.
Thankfully it was a fireproof safe.
Nonetheless, he had $140000 sitting in cash,
making nothing, should've just buried it in his backyard.
I don't know how much interest he'd lost.
I didn't even wanna calculate that.
That by far was one of the craziest
things I've seen anybody do with cash.
This is not one of the options I'm gonna talk about.
This is an option that you do not do.
Don't keep it in a safe,
don't hide it away where you don't know where it is.
Bad idea.
Let's get down to the last two alternatives
when it comes to traditional bank accounts.
Number six is real estate investment trust,
otherwise known as REITs.
I've talked about REITs and investing
in real estate in other videos.
Actually, there's a video that I talk about
the eight different ways that you can
invest into real estate without actually
buying or managing any properties.
That's a video you're gonna wanna check out.
In that video, I talk about REITs.
REITs are package, sold,
available in many different formats.
You can buy kind of like stocks.
These are companies that they specialize
in managing real estate properties.
You can buy stocks that do that,
you can buy mutual funds that do that,
you can also buy ETFs that buy and manage
different properties whether they're
buying individual REITs or they're
tracking some sort of real estate index.
There are many different ways that you can do this.
You're probably going back to the stocks and the bonds
option that I talked about earlier
where it just gets confusing because Jeff,
there are so many different options then, what do I do?
I think the most simplest way is
buying some sort of REIT ETF.
I think that's a very simple way.
You're gonna get a decent dividend,
you're gonna get access to real estate so that's one way.
Another way that I'm more partial to is
online real estate crowdfunding,
online real estate investing.
You have companies like Fundrise, RealtyShares, Rich Uncles.
There are several out there and
more are becoming available.
The one that I'm more partial to
and this could change over time,
but the one that I like right now is Fundrise.
Fundrise, basically what they are is
a real estate investment trust company.
This is what they do.
They go out and buy the properties,
they manage the properties,
you just invest the money and they take care of the rest.
What I like about Fundrise is that
it doesn't take a lot to get started.
You can open an account with Fundrise with $500.
A lot of mutual funds,
you have to have a minimum of $1000, $2000, $2500,
some are even higher than that.
The fact that you can get access
to real real estate properties for
as little as $500 and all you have to do
is log on on your laptop or you computer at home
or even your smartphone.
That's legit.
Number seven, the last option is peer to peer lending
and I've talked about this before.
Here, there are options like Lending Club, Prosper.
Lending Club is the one yes,
you can go ahead and do a quick Google search
and you can see that Lending Club
has had some struggles with their executive team,
with their CEO.
That being said, I've had a Lending Club
account now for several years.
I'm trying to remember exactly when I opened it.
Just to be safe, I'm going to say 2011
is when I opened my first account.
Currently I have I think it's four different
accounts with them right now,
opened up a newer one here recently with $5000
and I did a video where I shared
my previous Lending Club experience
as well as me picking or building a portfolio,
my new portfolio in Lending Club.
Be sure to check out that video.
Peer to peer lending is allowing you to be the bank.
Instead of going to the traditional bank
and putting money in their account
and having them pay you a small bit of interest,
you're doing the complete roll reversal
and you are becoming the bank.
Now you are lending the money to other peers
that are borrowing the money for different purposes.
It could be consolidating debt, paying off credit cards,
could be a business loan, could be a wedding.
There are so many different reasons
obviously that people are borrowing money.
The cool thing is that you can
actually see what the reasonings are.
What are they borrowing the money for?
Like the ETFs I mentioned before
whether it be stocks or bonds,
you can be as aggressive or conservative
as you want with that.
It really just depends on what your comfort level is.
I will say that a lot of the other
options I've talked about and I mentioned
this earlier in the video but it's worth saying again,
is that these are not 90 day, six month,
one year type investments.
These are not options that if you
need access to your money right now
or tomorrow or next week,
you're not gonna wanna do some of these investments
because with Fundrise for example,
there is a redemption fee meaning that
you have to pay some sort of
transaction charge to get your money back.
With Lending Club, yes, you can sell your notes,
but it's on the secondary market
and you have to find a buyer.
It could take a few weeks to finally
sell your notes to get your money back.
If you are needing quick access to your cash,
you don't wanna consider these options but,
if you already have your emergency fund intact
and you want to make more interest,
that's where these seven alternatives
can make a whole heck of a lot of sense.
That is the seven alternatives to traditional bank accounts.
I hope that I've given you something to consider.
As you can see, there are so many different choices.
You can do all of them, you can do one of them,
you can do none of them,
but all I want to share with you is that
there is more than one way to invest,
there is more than one way to earn interest on your cash.
Which option sounds the most attractive for you?
Let me know in the comments below.
Which option are you going to take advantage of
to earn more interest on your money?
Like I said, let me know in the comments below.
Appreciate you checking out this video.
As always, this is Jeff Rose reminding you
that it's your money, it's your life,
and only you can make it awesome.
Take care.
♪ Show me the money ♪
♪ Gotta get me that money ♪
♪ Money, money, money ♪
♪ Hey, hey, hey, hey ♪