When it comes to saving, there are two distinctive money mindsets: Stashers and Stackers.
Stashers obsess over interest rates. They busy themselves trying to find the savings account with the highest yield.
Stackers play a different game. They’re more interested in building their savings with small, consistent contributions in an account that gives them flexible access to their money with as few fees as possible.
To Stash or to Stack?
To illustrate these mindsets, let’s say a Stasher finally settles on a high yield savings account with a competitive 0.80% annual percentage yield (APY)*. He has set aside $1,000 and is excited to put that money into the account and watch it grow.
A Stacker, who is just starting to save, sets aside $500 in a Simple account. Understanding she won’t be getting rich with a 0.01% APY**, the Stacker uses Goals, Simple’s built-in savings tool, to automatically save $2 per day towards her emergency fund.
Here’s how the accounts grow over the course of a year.
Our Stasher, with his love of interest, is pretty pleased to see an additional $8 and change at the end of the year. Our Stacker only earned about $0.05 in interest, but the savings habits she developed using Simple helped her put away $730 over the course of 12 months saving just $2 per day.
Fees Can Destroy Interest Gains
The first week in July 2014, the Stasher and the Stacker took a trip to Portland, OR to take a dip in the Willamette and hang out with the local sasquatches. Between travel and accommodations, they each spent about $800.
This put the Stasher in a predicament. He didn’t have enough funds in his primary checking account to cover the cost of the trip until he received his next paycheck. Because he had put $1000 away into savings, a not inconsequential sum for our Stasher, he needed those funds to put gas in his car and buy groceries. He decided to withdraw the $800 from his high yield savings account and pay himself back on payday.
Unfortunately, his bank charges customers with high yield savings accounts a $10 fee for any month that the balance dips below the $1,000 minimum. The Stasher paid himself back as soon as he could, but the damage was done.
Using Simple, the Stacker was able to spend from her Rainy Day Fund Goal sans fees or hassle. She paused her automatic saving during the trip so that she could free up a little extra money for her Safe-to-Spend. After she received her paycheck, she caught up the Goal and resumed automatically saving $2 per day.
The $10 fee wiped out the Stasher’s interest earnings for the past 12+ months, AND he had to quickly add an extra couple of bucks to avoid another $10.00 fee.
Meanwhile, our Stacker hasn’t missed a beat.
While not all savings accounts have monthly fees or minimum balances, many do. It’s important to understand when these and other fees are applied so you avoid wiping out the interest you’ve made over the year (or more!).
The Stasher Trade-Off
Whether you identify as a Stacker or a Stasher, saving is better than not saving. However, it’s crucial to understand how to strategically Stack or Stash based on your income, lifestyle, and amount already in savings.
Stashing makes a lot of emotional sense. It’s what we’ve been told to do since we were little kids. But unless you have a LOT of money to put away indefinitely, being a savvy Stasher involves trade-offs. You would have to stash more than $90,000 in a high yield savings account with 0.80% APY to earn as much in interest in a year as you would save by putting $2 per day towards a Goal using Simple.
For example, say you have a bunch of money that you want to put away. Traditionally the safest thing to do is put that money in an insured Certificate of Deposit.
According to a leading aggregator of financial information, on 04/15/2015, the national average for a 1 year CD is 0.27% APY and the national average savings account is 0.09% APY. You have to make the call on whether that extra 0.18% is worth not having access to your money for the CD period.
Save Like a Stacker
Many Simple customers are Stackers. They recognize that when they don’t have five- or six-figure lump sums to leave in an account, and interest rates are down across the board, it may be best to move out of a Stasher mindset into something more proactive.
We built goals to make it easy to develop the savings habits of a Stacker. The ability to automatically make regular contributions to Goals empowers Simple customers to save more than those saving the Stasher way.
For more information about starting for first Goal, check out our post What’s New With Goals?. Happy stacking!
* Annual percentage yield is the amount you earn on an interest-bearing investment over the period of a year, taking into account compound interest.
** Simple’s APY effective 04/15/2015. Rates subject to change. Fees may reduce earnings.
If you’re already a Simple customer, click here to start stacking right now with Goals. You can adjust the end date to save more or less per day—whatever’s right for you. In a few months, you’ll wake up with an extra $1,000 that you didn’t even have to think about saving. That’ll be a good day. Happy stacking!