FIRE: Club Savings VS Personal Savings Accounts
3 Reasons why club savings accounts are the future.
1.) Reliance on ONE bank with a personal account
Here's the truth. Your current bank does not give a flying fuck if you make sound financial decisions. They literally profit off you being an idiot.
Being an idiot - a definition.
a. You accept a 0.01% deposit rate on your savings
b. You get hit with an overdraft fee every few months
c. You take out a loan that you almost certainly cannot afford
d. You buy high expense investments or insurance from your bank
e. You settle for terrible websites, rude customer service, and never ending antics to steal your money or sell your personal information
So even if your bank currently pays a solid savings rate (I'd bet your using Ally or Marcus) today, it is very unlikely they will be paying that rate tomorrow. Case and point, Ally is on its way to joining the other big asshole banks at a 0% APY on savings (only a matter of time).
On top of all of that, these banks make swithcing has difficult as possible.
With club savings, you enter into what is referred to by finance nerds as "open banking". Open banking is like an open relationship. Something you have always wanted but always been to afraid to ask for (I'm kidding here).
With open banking, you essentially activate a bank and earn the rate they offer until a better one comes along and you can easily switch.
Sure, it's the opposite of loyalty. But that's the point.
You win in this world, they (banks) win in the personal savings account world.
With open banking, their is zero incentive on the platform providers part to give you anything but the best rates on deposits/loans/whatever since they don't make money off of any of it. For those curious, club bank accounts on open platforms typically are low-cost and in a subscription format.
So you never have to rely on a bank keeping their rates competitive since you can just ditch their ass with a click (same is true if they try to charge your silly fees).
No debate here really, club accounts are just way better.
2.) No chance you are hitting the higher tiers with a personal account
You know those rates you sometimes see on bank websites that are available if you have $100,000, $250,000, or even $500,000 in the savings account?
Have you ever thought for a second - who the fuck is this for?
You are either the worlds biggest idiot to be sitting on $500,000 in liquid (savings) cash or you just pulled a kidnapping job and were wired the money.
Kidding aside, FIRE folks will never sit on that much in risk-free savings. Even the most bold of us will hold only $100,000, consisting of a hefty emergency fund and possibly a down payment for a new home/wedding expenses.
So that leads us to, how do we ring this bell and get to the tiers that actually pay out?
Two words: Club Savings.
Club savings pool together every member's savings into one big account.
So in other words, a FIRE-family/group with 10 members sitting on $25k each are hitting the $250k minimum balance requirement and thus can access the higher rate together.
Bank nonsense - defeated!
Yes, you will want to keep an eye on balances over $250k for FDIC-insurance purposes. But doing so is incredibly simple on most club savings platforms & you can always add a 2nd bank to your selections if you want to be hyper conservative (capping holdings at $250k+int earned at Bank A and transferring int earned to Bank B at month-end).
So welcome to a world where you can actually get "those rates"!
Club savings 2, Personal savings 0.
3.) FIRE and not-so-FIRE can both WIN with a club
Here's the most noble of the big 3.
SOME of your friends and family absolutely suck at saving.
Of that bunch, 20% "want to get better".
Right now they are using the bank account they opened in college that pays 0% and are likely looking to buy a house during the pandemic. They kind of understand credit cards, have student loans (don't we all) and are equally as pitiful at budgeting as they are at goal planning with excel.
With club savings, you actually have the ability to help out these dumbos.
Rather than letting them swim in the ocean of their eventual financial ruin, you can invite them to be members of your club.
As members, they can immediately access the higher rate your club is earning. Over a lifetime, you have essentially helped them retire years earlier (or to have bought a boat or two).
Inviting them in is also a great opener for next baby steps - the biggest one being financial goal planning.
Goal planning is vital for them to learn as you need to give them a reason as to why they are transferring away happy hour money every week.
With club saving, you can literally be their hero (even if they just call you a finance dork for the first few years) as you will open financial doors/opportunities that will never exist for those that stick with the personal savings account strategy.