(American example based on https://www.effectivealtruismdata.com/ demographics, but same principles apply broadly)
tl;dr save thousands every year with no spending/saving/investing behavior change by switching to high interest saving accounts and cashback credit cards
Credit cards:
- Cashback: ~$1000/yr: Debit cards are still used more than credit cards in America,[1][2][3] even though American credit cards with no annual fees offer at least 2% cashback on all purchases.[4][5] Americans spend ~$10T annually across payment card types (~$50k/adult).[6]
- Cashflow: ~$500/yr: Unlike debit cards, credit card statements are paid a month or two after the actual purchases, allowing interest accumulation in the meantime. Treat credit cards like debit cards and do not spend money you do not have. Set up automatic payments to always pay monthly statements in full.
- Credit score: $?/yr: Responsible credit card use improves credit scores, which lowers interest rates on money borrowed going forward. Most American household debt is mortgage debt,[7] but this will also get better rates on other loans like auto and student loans.
- Better fraud protection: $?/yr
Bank accounts:
- Interest: ~$3000/yr: American savings account interest rates average ~0.2%,[8] even though many savings accounts and money market funds offer well over 3% interest rates and rising.[9][10][11][12] Americans average ~$40k in savings; Americans with bachelor’s degrees average ~$80k in savings.[13] (tax filing should include any savings account interest)
- Avoiding fees: ~$100/yr[14]: Your bank should not charge ATM/overdraft/excessive transaction/minimum balance/maintenance fees (not even for using other banks' ATMs)
- ^
https://www.forbes.com/sites/ronshevlin/2020/11/09/the-debit-card-explosion-is-going-to-fizzle/
- ^
https://www.spreedly.com/blog/credit-card-acceptance-rates-2019-regional-breakdown
- ^
https://www.fool.com/the-ascent/research/credit-debit-card-market-share-network-issuer/
- ^
https://www.nerdwallet.com/best/credit-cards/cash-back
- ^
https://www.bankrate.com/finance/credit-cards/cash-back/
- ^
https://nilsonreport.com/publication_chart_and_graphs_archive.php#:~:text=Consumer%20and%20commercial%20credit%2C%20debit,reach%20%2414.075%20trillion%20in%202026.
- ^
https://www.stlouisfed.org/open-vault/2020/april/snapshot-record-high-household-debt
- ^
https://www.bankrate.com/banking/savings/average-savings-interest-rates/
- ^
https://www.bankrate.com/banking/savings/rates/
- ^
https://www.nerdwallet.com/best/banking/high-yield-online-savings-accounts
- ^
https://www.investopedia.com/best-high-yield-savings-accounts-4770633
- ^
https://www.wsj.com/articles/the-42-billion-question-why-arent-americans-ditching-big-banks-11670472623
- ^
https://www.bankrate.com/banking/savings/savings-account-average-balance/
- ^
https://www.nerdwallet.com/article/banking/checking-account-fees-study
If you have non-qualified investments and just keep money in a savings account in case of unexpected large expenses or interruptions to your income, it may be better to instead move the money in the savings account to Interactive Brokers and invest it. Crucially, you can get a debit card from Interactive Brokers that allows you to spend on margin (borrow) at a low rate (~5%, much less than credit cards) using your investments there as collateral. That way you keep essentially all your money invested (presumably earning more than the savings account) while still having access to liquidity when you need it.
I use Interactive Brokers, but I don't use their debit card because I expect their fraud protections are not as good as a credit card, and I don't want to expose ~all my net worth to an easy fraud vector.
I use a checking account and keep enough money for ~2 months of expenses, and keep the rest in my IB account. I don't have a savings account.
I agree it's important to keep the weaker fraud protection on debit cards in mind. However, for the use I mentioned above, you can just lock the debit card and only unlock it when you have a cash flow problem. (Btw, if you don't use your IB debit card, you should lock it even if you aren't using it.) Debit card liability is capped at $50 and $500 if you report fraudulent transactions within 2 days and 60 days, respectively.
That said, I have most of my net worth elsewhere, so I'm less worried about tail risks than you would reasonably be if you're mostly invested through IB.
That's good, I didn't know that!
Agree moving more savings to investments has higher expected value
Different people have different volatility/risk tolerances and experience investing. Wanted to offer a couple quick large tractable gains without any tradeoffs or behavior changes, and better savings accounts can still be combined with investing more
I've been thinking of opening an account at Interactive Brokers. If you want to share your referral link, I'd be happy to use it.
Thanks: https://ibkr.com/referral/charles6837
+1 agreement vote if planning on switching cards or savings accounts
+2 agreement vote if planning on switching both
+1 agreement vote if planning on donating any resulting savings