329 | Don’t Make This Big Mistake with Your Money

You might be making a big mistake with your money, and you probably don’t even realize it.

Many lawyers are falling into the same trap and losing out on hundreds and thousands of dollars.

In this episode, let’s talk about the mistake that’s sabotaging so many lawyers’ finances and a simple shift that will help you start building wealth faster.

• • recent conversations with lawyers making mistakes with their finances

  • the problem with the choices the lawyers have made

  • a better choice for your finances and why

  • considerations for making the right choice

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You’re listening to Personal Finance for Lawyers. I’m Rho Thomas, and as a busy wife, mom, and former Biglaw associate, I know all too well the tension between the culture of the legal profession and pretty much everything else you want to do in life. That’s why each week, I’m bringing you the information and tools you need to improve your money mindset and manage your money to create true wealth. Because ultimately, it’s not about the money. It’s about the freedom and flexibility the money affords.

Hey friend. Welcome back. I hope you are doing well.

So I have to talk to you because despite having this conversation multiple times, I understand that many of you are still making a big mistake with your money. I have had multiple conversations recently with people who still have their savings at Wells Fargo and Bank of America and these other brick-and-mortar banks. That is a huge mistake.

The problem with savings accounts at brick-and-mortar banks is they pay such low interest, you are losing money. The interest rate at brick-and-mortar banks is 0.01%. I’ve previously shared my own experience of working hard to build my savings to $1,000, and then my brick-and-mortar bank paid me one cent in interest that month.

That led to me researching and learning about high yield savings accounts. I was in college at the time, and it just didn’t seem right to me that having a whole comma in my bank account earned me a penny. So I started doing some research about how to earn more money, and I came across high yield savings accounts, and I opened my first one my senior year of college.

Currently, the interest rates on a high yield savings account are between 3 and 4% interest. So that’s up to 400 times more than brick-and-mortar banks. And that interest rate fluctuates because when I first opened a high yield savings account, it was 1% interest, but that was still 100 times more than what I was getting at my brick-and-mortar bank.

In addition to having higher interest, they often don’t have the fees and minimum balance requirements that sometimes come with accounts at brick-and-mortar banks. So that’s another reason why I like them.

We are teaching our kids about money, and they have accounts at Ally Bank. Technically, the accounts are in our names, and we’ve just designated this one is for this kid, that one is for that kid, and I put little labels on the debit cards for the accounts with their names, so they can figure out how they want to manage their money.

One of my kids is very much a spender, but the other likes to hold on to his money. And Ally actually pays interest on their checking accounts as well as their savings accounts. In their checking accounts, it’s about 0.1% interest, which, funny enough, is still 10 times higher than the savings accounts at brick-and-mortar banks.

So the child who likes to hold on to his money, his checking account had gotten up to about $100, and he was getting one cent in interest each month. Notice that. That he had $100 and was getting a penny. I had $1,000, and I was getting a penny.

Meanwhile, though, his savings account was at about $80, and he was getting 25 cents a month in interest, and so I showed that to him. That’s part of this learning about money, learning about interest, all of that. So I showed him like, hey, you’ve got $100 in your checking account. They’re paying you a penny. You’ve got $80 in your savings account, they’re paying you a quarter.

And so I encouraged him to move some of the money from his checking account to his savings account because he doesn’t spend that much, and so he decided to move all but like $20 from the checking account, and he put the rest of that into savings. And when he did, he started getting 50 cents a month.

That’s an example of how this higher interest rate works in your favor because he had the $100 and was getting a penny, and then he got to $160 and he’s getting 50 cents. That is a huge difference. And then imagine if we were talking about $100 in a regular brick-and-mortar savings account versus the $100 in the high yield savings account. Another thing is the interest compounds. The interest that you earn each month in your high yield savings account earns more interest as well.

So, for my son, when he earned that 50 cents, now it’s $160.50, and 4% of that he’s earning in interest. If you’re not using high yield savings accounts, you are making a mistake, and I encourage you to open one today.

I would even go so far as to say, banking with a brick-and-mortar bank at all these days is a mistake because of their fees and the minimum balance requirements and the lower interest rates. I am just not a fan, and I closed my brick-and-mortar account whenever it was that SunTrust merged and the bank became Truist. Like I had an account with SunTrust, and when it became Truist, they started charging me fees, and I was like, absolutely not. Like, I don’t know why I wasn’t being charged fees before. Maybe there was some sort of direct deposit situation because I was using that SunTrust account for my fun money.

If you are new here, my husband and I put all of our money together for our family finances, but we each get a set amount each month into a separate account for fun money. Mine was going into this SunTrust account that I had. It was the first bank account that I ever opened, but when SunTrust became Truist and they started charging me fees, I closed it out, and that’s when I started working with Ally.

So all that to say, I am not a fan of brick-and-mortar banks. I think that online banks are a lot better. They tend not to have fees or have lower fees. They pay you more in interest, and the experience is not that different. Like even though Ally doesn’t have bank branches, you can still get money out of an ATM if you need to. But we’re moving so far away from cash these days, I rarely need an ATM, but when I do, I get that out. And yes, you get charged a fee on the ATM, but Ally will reimburse your ATM fees, as well, so I don’t actually incur that charge myself.

I am so far off track from what I’m talking about. That is not the topic of discussion for today. My point for today is: if you don’t have a high yield savings account, I want you to open one. You can hop on Google and search for one. As I mentioned, I have Ally. Some of my clients have used Sofi. There are lots of accounts available, and so a simple Google search will help you to find one that’s right for you.

One thing that I want to caution you about though is make sure you are working with an actual bank and not one of these fintech startups. The ones that I named are actual banks: Ally, Sofi, and there are others. But there’s at least one fintech I heard about called Synapse that shut down, and people lost their money because the FDIC only protects against bank failures. It does not protect against fintech failures.

So, despite that, fintechs typically work with FDIC-insured banks, and those banks actually hold the money, many of those people, when Synapse collapsed, still have not recovered their funds. So, be sure that you work with an actual bank. That is my word of caution there. So many people are trying to get into this banking space. Make sure you’re working with an actual bank, and that your relationship is with the bank, which is FDIC insured, not some middleman.

And if you would like help with identifying other small steps that you can take to make big improvements with your money. Apply for a coaching session at rhothomas.com/apply. I would be happy to help.

All right, so that is it for this week’s episode. Please share this episode with a friend or two. I think this is an important conversation because so many people are still working with brick-and-mortar banks and losing money. As always, I appreciate your support.

As we close out, friend, I pray that you take the information you learn here, apply it in your life, and open up to the realization that wealth is available to you. As you do that consistently, week after week, you’ll continue to take steps to take back control of your time, build wealth, and live the life of freedom and choice you deserve. Talk to you later.