Fridays with Chris Englebert
Chris Englebert: This week I want to talk to you about something that's kind of been bothering me for probably the last couple of years.
Chris Englebert: So we do a lot of quote financial planning for high net worth clients. And what we do is we actually sit down with them and we find out where all their money is
Chris Englebert: But one of the things that absolutely drives me crazy is when people have inordinately high balances and checking accounts.
Chris Englebert: But also in savings accounts. So you have to understand how bank savings accounts came about.
Chris Englebert: So years ago what ended up happening was that banks would offer a bank savings account for you to put your extra money and now a lot of people
Chris Englebert: When they hear the word savings account think that, hey, this is something I should keep my excess funds in because it's quote a savings account.
Chris Englebert: It is not a savings account. I call it a don't pay you any interest account is what I call it. So why do they savings accounts come about, well, you have to understand that back in the day.
Chris Englebert: Banks have to report to the Federal Reserve in the Treasury, how much they have on deposits at all time to meet their requirements as far as sufficient capital.
Chris Englebert: And so savings accounts were created because people were starting to use checking accounts and later money market funds which paid more interest.
Chris Englebert: To be able to write checks off of to pay their bills. So what ends up happening is people end up having two different accounts, they have a savings account that they think they're saving money in
Chris Englebert: And then they have their checking slash money market account where they write checks off. Well, the big problem with that is again savings accounts aren't really savings.
Chris Englebert: There don't pay you any interest accounts and in this current world of low interest rates are ultra low interest rates, you're seeing saving face saving accounts rates.
Chris Englebert: Literally at rock bottom right now. So what do you do instead of having a savings account, we strongly urge you to have an investment account. So what we do here at our practices will have clients.
Chris Englebert: If they're married, they have a joint account if there's individuals they I was obviously an individual account. Chris Englebert: And we custody at one of the major custodians, for example, Fidelity TD Ameritrade or Schwab. So those are the custodians, and then what we do is we hook their local checking account.
Chris Englebert: To their investment account and we're able to be much more efficient and we are able to electronically move money back.
Chris Englebert: Literally, the same day. So why do you want to do that instead of a savings account. Well, because if you have an investment account. There's a myriad of other investments out there.
Chris Englebert: A lot of people don't realize this, but all of the major custodians Charles Schwab fidelity and TD Ameritrade Chris Englebert: And by the way, this is not an endorsement of any of them just an example that we use, but all the major custodians allow you to buy bank CD's as part of your investment accounts. So a bank CD rates are attractive.
Chris Englebert: I'll go in and buy a three month or six month Banksy rate for somebody, and when it comes to they can renew it they can re up it and make some additional interest in what they would obviously a no pay savings account.
Chris Englebert: Other things we can do is, there's a lot of short term bond funds right now that are paying attractive interest.
Chris Englebert: Even in a low interest rate environment. So there's a myriad of other investments that you can do with your excess funds.
Chris Englebert: But it is not unusual. And I have seen it where people will come into A into us and they'll sit down and say, hey, I want to be more efficient with my money.
Chris Englebert: And they will have $100,000 in their checking account, they will have $200,000 in their savings account.
Chris Englebert: That is way too much money they have in those very low interest bearing account. You need to be much more efficient with your investment accounts, you should have an investment account.
Chris Englebert: Hooked up to your checking account that allows you to move money back and forth between the two. So if your
Chris Englebert: Income. For example, if your paycheck gets deposited into your checking account and that starts to build up and we always tell people
Chris Englebert: Keep enough money in your checking account to feel comfortable, you don't need to keep $100,000 but you need enough in there to pay bills and if something
Chris Englebert: extra ordinary happens to be able to pay, but anything more than $20,000 in a checking account.
Chris Englebert: Is a lot of money in a checking account because think about it. If you have an investment account and I can earn you even 1%
Chris Englebert: On $20,000 that's $200 a year, more than what you'd make it a no interest or low interest rate savings account. So again, it's all about being efficient with your money.
Chris Englebert: Don't fall into the trap that when you hear somebody say, Hey, I got a savings account at a bank. It's not a savings account if they
Chris Englebert: Were not going to pay you any interest rate account is really what they should label it as Chris Englebert: So again, it's all about being efficient with your money. It's all about having your money in the correct places all about having access to your money as well.
Chris Englebert: And there are there are many ways you can do that, that are much more efficient and keeping ultra high balances in checking account or savings account. So that's my quote rant for this week. It came to light because obviously
Chris Englebert: A couple of weeks ago, we had a potential client come in and tell us how much they were keeping in a savings account. I just had to get that out there because a lot of people really just don't understand the difference between the two.
Chris Englebert: So again, I'd like to thank Rotella Capital Management for allowing me this platform to express my views. These are my views alone and not have Rotella capitals appreciate all the work they do for us and have a great rest of the week.