California

I’m writing about all the bonuses you can get for opening a savings account or other financial account (like $50 to open an ING checking account, for example). Is this something your readers like to do? How do they find out about these offers? What advice would you give people about the pros and cons of using these incentives?

It’s been a l-o-o-o-n-g time since I wrote about savings accounts around here. Part of that is because there just hasn’t been anything exciting to report. Interest rates are still pretty low, and the difference between banks is minimal.

Lately, however, there’s been a bit of bubbling in the marketplace. I’m not sure if anyone else feels it, but it seems to me like rates are ready to rise. (They could hardly go any lower!) Plus, people have begun to e-mail me again asking about where they should put their money.

So, let’s talk about banking. How do you choose your savings and checking accounts? Is it based just on interest rate? Or do you take special offers into consideration? What offers have you noticed lately? It used to be that most of the high-yield savings accounts offered some sort of incentive to sign up. Maybe it’s because I haven’t been looking, but I haven’t noticed this lately. Have you? What other promotions are out there? And how do you find out about them? What are the pros and cons of pursuing these deals?

For example, my pal Jim over at Bargaineering just wrote about a bank deal earlier today. M&T Bank — which only has branches on the east coast — is offering bonuses of up to $150 $100 for opening a new checking account.

And though it’s not a bonus really, Ally Bank is offering “raise-your-rate CDs“. Open a two-year certificate of deposit with Ally, and if rates increase during those two years, you can request a rate increase (but you can only do this once). Since even the best CD rates are pretty low right now, this is a good way to protect yourself if they start to rise (as they probably will).

What are the drawbacks? In most cases, there aren’t any — if you’re willing to jump through the hoops required to get the bonuses.

For example, rewards checking accounts can offer better returns than even high-yield savings accounts. But to get these returns, you have to use a debit card to make 10 or more point-of-purchase transactions each month, go paperless, and so on. If you don’t do these things, you don’t gain anything. (And, in fact, the company that provides rewards checking accounts to banks and credit unions markets this product as a profit center for the bank, so that should tell you something.)

Tip: On a semi-related note, Five Cent Nickel has been running an ongoing series about the best credit card offers. Past installments include the best rewards credit cards, the best low-interest credit cards, and 0% balance transfer credit cards. Would you like it if I wrote about this sort of thing once in a while at Get Rich Slowly – for credit cards or other types of products as well?

In the past six months, I’ve spent more money on personal development than I have in my entire life. I’ve also spent considerable amounts on laptops and on a holistic wellness program. Now that I’m somewhere in the third stage of personal finance, I see the value in investing, and I’m not just talking about the stock market.

What I started to notice was how having my finances in order was creating more savings. In just six months, I’ve saved more than $1,250 on the costs of goods and services because I was able to pay the total amount upfront.

No interest
There are a few ways that paying in cash (or with a credit card paid off in full) can save money that astute GRS readers can easily identify. For one thing, paying in cash means no interest. The higher the interest rate, the more you pay. Credit cards also present the possibility of late fees and other charges if you don’t pay the balance every month.

Negotiation power
I haven’t actually used the bargaining power of cash myself, but I read about it in researching this article and feel it’s important to mention. (I’m awful at negotiating. It’s something I’m trying to learn.) Basically, if you are dealing with someone who is in a position to negotiate price, you can get a better deal by offering to pay in cash. For small businesses, cash is cheaper, faster, and a sure bet. No personal checks to cash (that could bounce) and no credit card fees. The transaction is completed on the spot.

Contrary to popular belief, one time that cash is not king is negotiating for an automobile. In fact, mentioning your ability to pay in cash may mean you’ll pay more. Car dealers make more money when you finance through them. If you announce your intention to pay in cash, they’ll be less likely to lower the price. Agree on a price and keep your payment method to yourself until you’re in the finance office.

The lesson here is to consider the business and the person with the bargaining power. Is it in their best interest that they receive cash? If so, it never hurts to try to negotiate. I say that to you, the readers, as well as to myself!

Forgoing payment plans
This is the method that saved me the most money in the last several months. A quick rundown:

In November, I enrolled in a yoga teacher training program. I could pay the total amount upfront, or I could elect a monthly payment plan. At the end of the training, the monthly plan would cost $500 more than paying in full.In January, I joined Ramit Sethi’s Earn 1K program. Earn 1K had a similar structure, where paying in full was less expensive in the long run than monthly payments.Last month, I started going to a new wellness center to address shoulder and back pain, and the start-up program was 15 percent less if paid in full.

When I added up the savings, I started to see how savings begets savings. When you have a handle on your finances, there are many instances where you can pay less. I imagine that wealthy people, or at least those who were taught good money habits at an early age, would probably laugh at my little revelation, finding it hilariously obvious. Oh well, better late than never, right?

This may not be for you
I think this concept, while useful, also deserves some words of caution. A few guidelines on the tactic of paying in full:

If you are still paying off debt, paying in full may not be appropriate just yet.If you can only pay the full amount using a credit card that you can’t pay in full, this is definitely not appropriate for you. And it doesn’t even count as paying in full.Only pay in full if you know for a fact that you will use the product or service. For example, if you never stick to an exercise plan, think twice about buying a full year of personal training sessions. Start smaller to establish good habits.If you do commit to a year of training sessions (or anything else), make sure there’s a money-back guarantee or loopholes if your situation changes. In the yoga program, if I had to quit, I’d be refunded the percentage of the course I didn’t attend. Earn 1K offered a money-back guarantee. Terms should be fair to both buyer and seller.

Feel free to add more guidelines in the comments if I’ve left anything out, and if you have an example to share, share it!

J.D.’s note: Yes, yes, a thousand times yes! I’ve noticed this myself, and it’s one of the best parts of being out of debt. Plus, when you have control of your finances, you’re able to take advantage of unexpected deals and opportunities.

This article is about Advanced, Hints and Tips, Savings  Tuesday, 11th May 2010 (by April Dykman)  

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