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DON'T USE A BANK! This is a MUCH better option... - YouTube
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so my goal in this video is to convince
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you in the next five minutes why the
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bank is a terrible place for your money
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and I'm also going to provide you guys
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with a much better option than just
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putting your money into the bank and
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letting it sit there so this is a
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concept that is nothing new a lot of
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people have known this for a very long
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time that thanks to something called
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inflation leaving your money sitting in
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the bank is actually a terrible option
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when it comes to preserving the
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purchasing power of your money and
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mainly what I want to do here is explain
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this concept in case this is something
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you've never learned before so if you
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are learning us for the first time
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please drop me a comment down below just
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so I'm aware of how many people never
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heard of this concept before or
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understood that you know you're losing
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the buying power of your money
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thanks to inflation now real quick
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before I get into the video I want to
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give a quick shout out to Jeff rose
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because he inspired this video he posted
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a video talking about why banks are a
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terrible place for your money and he
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gave a couple of other interesting ideas
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of where to put your money instead of
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putting it into a bank account so I'm
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gonna link that video up down in the
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description below because it absolutely
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inspired this one so thanks for putting
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that video out Jeff awesome video there
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okay so the first thing I want to talk
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about here is a survey that gold banking
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rates conducted back in 2016 looking at
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what percentage of Americans actually
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had money in their savings account and
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how much they actually had saved up and
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what they found is that 34% of Americans
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have zero dollars absolutely nothing in
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their savings account and 35% have less
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than $1,000 so this is primarily focused
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towards those who have $1,000 or more
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sitting in your savings account but even
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if you have less than that there are
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still better options than leaving your
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money sitting there in a checking
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account or a savings account and I'm
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gonna show you guys exactly what that is
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at the end of this video let's go ahead
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and take a step back here and go over
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some basic personal finance lessons by
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defining a couple of terms for you guys
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all right first of all what is a savings
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account a savings account is simply a
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place to put your money that you are
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saving and this is money that is
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completely liquid you have very easy
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access to this money
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and then the other one that goes
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hand-in-hand with this is your checking
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account and the only difference between
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these two accounts typically is the
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ability to have a debit card and do
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withdrawals and deposits from your
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checking account where you're not going
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to have a debit card with your savings
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account and that is primarily what these
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two things are supposed to be used for
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the savings account is used to hold on
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to your extra money that you need to
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keep in liquid form and the checking
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account is used to pay bills but what we
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are finding is that people are keeping
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way too much money in one of these two
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accounts and as a result they are losing
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the buying power of that money because
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interest rates are extremely low on
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these accounts and inflation is
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significantly higher and just to cover
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those two terms for you guys inflation
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is basically the deterioration of the
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buying power of your money basically the
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best example is it was a lot cheaper to
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buy bread in the 1920s than it is to buy
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bread today because of inflation prices
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have increased and the buying power of
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each dollar has decreased and then your
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interest rate is simply the amount of
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money due based on a deposited sum of
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money so when you put money into the
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bank into a checking account or a
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savings account or some kind of
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certificate of deposit they are going to
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give you a certain percentage of that
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money back every single year now before
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you guys get too excited about that I'm
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about to shatter that and show you why
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that's actually terrible they're really
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not giving you pretty much anything so
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according to bank rate the average yield
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for a checking account here in the
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United States is 0.06 percent and I will
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tell you this I did a video on this
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topic about a year ago and it was 0.05
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so we've been proved by point zero one
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percent so we can all you know celebrate
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about that but obviously guys that is a
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terrible yield for the checking accounts
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and we understand that inflation
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typically sits around 2% per year but
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what exactly does that mean for those
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with a high balance in their checking
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account or their savings account if you
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have $10,000 sitting in the checking
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account for one year you're going to
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earn six dollars in interest from your
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bank you're gonna basically earn enough
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to buy I don't know a cup of Starbucks
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coffee but you actually didn't earn any
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money at all thanks to inflation
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fact you lost $200 of buying power even
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though you earn that $6 of interest so
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your actual loss over that year is 194
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dollars so even though you earn six
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dollars in interest your buying power
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deteriorated by $200 resulting in a loss
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of 194 and there are plenty of people
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out there with $10,000 or more sitting
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in a checking account or a savings
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account or possibly some kind of
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certificate of deposit with a yield that
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is lower than the rate of inflation now
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it's even more drastic or severe when
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you look at people with an even higher
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balance in their checking or savings
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account so take somebody with a 100
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thousand dollar balance if you give the
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bank a hundred thousand dollars and they
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hold on to it for one year they're gonna
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give you 60 bucks worth of interest
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which is again nothing that's going to
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pay for a dinner at that point in time
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but what most people don't understand is
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that thanks to inflation you lost $2,000
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worth of buying power on that $100,000
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meaning your actual loss here was 1940
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dollars over the course of one year by
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leaving a hundred thousand dollars in
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the bank and if that's not scaring you
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guys I don't know what will because if
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you're losing about two thousand dollars
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without even knowing it then that's a
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pretty scary factor in my best
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comparison that I've heard of before for
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inflation is that inflation is like
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termites day by day you don't really
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notice the effects but over the course
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of 10 20 30 years the entire house can
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come crumbling down and people can get
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wiped out by inflation by holding on to
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cash and that is why people who save
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cash in the bank lose money every single
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year and the best rule of thumb to
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follow is if interest rates for bank
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accounts stay around point zero six
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percent for every $100 you have in the
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bank you're gonna lose a dollar ninety
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four to inflation every single year so
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what are we gonna do about that I have a
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solution I want to share with you guys
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in that solution to this problem here of
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keeping up with inflation and protecting
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the buying power of your money comes to
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us in the form of short term bonds now
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if you guys are anything like most
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people I talk to you have no idea what a
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bond is maybe you have a couple of them
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sitting in your parents safety deposit
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under their bed but other than that you
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have no idea what these are so I want to
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give you guys a really quick finance
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lesson here so you understand what
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exactly these are and how short term
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bonds differ from your checking account
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or your savings account so a bond is
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very simply put a debt obligation it's
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an agreement to pay back debt over a
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certain period of time and basically the
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issuer of this bond is agreeing to pay
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you back at a fixed rate or it could be
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a variable rate over a certain period of
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time now as far as bonds a lot of people
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on my channel learn about stocks in the
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stock market and bonds are a more
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conservative investment that don't
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really get as much you know coverage
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it's just kind of they're kind of boring
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at the end of the day but think about a
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stock as equity owning a piece of a
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business whereas if you were a bond
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holder for a company you are basically
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like the banker you are just holding on
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to debt so people who invest in stocks
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get to capitalize on the growth of a
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company but bondholders are only going
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to be paid back whatever the agreed-upon
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yield is they're not going to capitalize
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on the growth of that actual company so
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that's the difference there between
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stockholders and bondholders now when it
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comes to bonds there are three primary
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types number one we have municipal bonds
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this would be bonds to local governments
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or local you know villages or cities
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let's say for example your village or
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your city had to replace a road and they
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didn't necessarily have the money for it
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they might take out a bond that you
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would be able to purchase as a municipal
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bond holder number two we have corporate
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bonds that is when companies are
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basically issuing debt and investors
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purchase that debt through a bond
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because they want to earn that fixed
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yield over that certain period of time
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and the number three we have the one
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that most people are familiar with that
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is US Treasury bonds this is essentially
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giving a loan to the US government to
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fund ongoing operations or to put it
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towards our massive debt shortfall but
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US Treasury bonds are considered to be
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the safest highest quality bonds with
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the lowest risk of default and what I
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mean by defaulting is to not be able to
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pay back that person and to basically
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fall short of your obligation to pay
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that debt back and as far as corporate
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bonds go these
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rated by Moody's and Standard & Poor's
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based on the creditworthiness of that
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borrower and higher quality bonds are
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going to command a lower interest rate
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lower quality bonds are going to command
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a higher interest rate because of that
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risk reward profile but that's getting
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pretty nitty-gritty here guys you don't
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necessarily have to know all of that to
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understand what we're talking about here
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now what I want to talk to you guys
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about specifically is a very easy to
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implement solution to this problem of
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losing the buying power of your money
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thanks to a new feature of betterment
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called smart saver now just for the sake
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of transparency guys I am affiliated
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with betterment but the reason why I am
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sharing this with you guys is because I
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believe in this product not because of
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any kind of benefit for you guys using
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it I do provide an affiliate link if you
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guys want to sign up for betterment
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under my link but by no means do you
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have to do that
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smart saver is essentially offering you
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a way to invest in these bonds and earn
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a rate of interest that exceeds the rate
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of inflation in a very low risk manner
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that gives you easy access to your money
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so instead of leaving your money in a
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checking account or a savings account
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betterment takes that money and invest
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it in a portfolio of very low risk bonds
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and based on today's interest rates
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their anticipated yield from this
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account after fees is two point zero
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nine percent meaning that since
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inflation sits around two percent you
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are fully protecting the buying power of
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your money by using smart saver and
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you're not losing that money by leaving
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it in the bank
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and what betterment has developed here
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is a very easy way for you to also get
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access to that money when you need it so
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let me walk you guys through the whole
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process then we're gonna talk about what
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betterment is actually doing with your
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money through its smart saver number one
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this is obviously a feature reserved
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only for those who have an account with
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betterment if you guys don't have one I
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provided a link in the description below
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if you wish to use it and I've also
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provided a link as well to smart saver
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if you guys are just looking to do some
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more research on this option provided to
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you but the very first step is opening a
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betterment account number two that is
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when you can enable cash analysis and
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what that does is betterment is going to
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link up to your checking account and
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your savings account to start to get an
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idea of your spending habits and how
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much money you're spending a month what
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are your regular
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recurring monthly expenses and once they
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understand these figures they're able to
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understand how much money you should
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realistically have in your checking and
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savings account at any given point in
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time and then they enable a feature
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called the two-way cash sweep I know
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that sounds confusing but it's actually
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not confusing at all when you have extra
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money in your bank accounts based on
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them doing analysis of your spending
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that money gets swept over to your smart
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saver account and it's invested in these
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low risk short term bonds that way it's
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protecting the buying power of that
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money and then when your account balance
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gets too low they sweep that money back
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into your bank accounts that way you
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have money available to pay your bills
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and if you are not a fan of that whole
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automated process you can do this exact
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process yourself by monitoring the
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balances of your accounts but if you're
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somebody like me and you're very
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forgetful this is a great option to have
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where they can basically automate this
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whole process for you and help you
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protect the buying power of your money
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so once your money is in smart saver
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what is betterment doing with that money
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well they're taking 80% of that money
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and they're putting it into a bond fund
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of us short-term Treasury bonds and that
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exact fund is shb if you guys want to
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check it out I'll also link it up in the
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description below and this is a
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short-term Treasury bond fund where all
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these bonds are maturing within the next
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12 months so these are very very
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short-term bonds and they are Treasury
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bonds these have the highest quality of
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debt rating and it is very short term
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bonds meaning they are going to be paid
[760]
back within the next 12 months so we're
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talking about basically as low risk as
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you can go when it comes to investments
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aside from some kind of insurance from
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the bank and those do not provide enough
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interest to even outpace inflation and
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then 20% of your money goes into short
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term investment grade bonds think about
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money being loaned to large American
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corporations like AT&T or CBS these are
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the highest quality companies that have
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been around for a very long time with
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very high debt ratings from Moody's and
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Standard & Poor's and that is what is
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meant by investment grade so these are
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very very high quality companies with
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long operating histories and a very well
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establish track record picture yourself
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loaning money to corporations and
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companies like AT&T for example and by
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doing this with your money by sweeping
[810]
that balance out of your checking and
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savings account and putting it into
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smart saver like we said right now
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they're looking at about a two point
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zero nine percent yield after fees
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meaning your buying powers being
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protected and you're basically doing
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nothing here you are allowing them to
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analyze the cash balance of your account
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and sweep that money back and forth to
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make sure you are not losing out to
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inflation now there are a couple of
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things I want to talk about that differ
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when you look at having money invested
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in short term bonds versus having money
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in some kind of bank and the number one
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thing that I want to talk about here is
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FDIC insurance when you leave your money
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in the bank whether it's in a savings
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account or a checking account or a
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certificate of deposit you are typically
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FDIC insured for up to $250,000 that
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means that if that Bank goes insolvent
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and they don't have access to that money
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for you you're going to get that money
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back from this insurance up to $250,000
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and you have to understand that there is
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no insurance in place for bonds but
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before you get afraid of that in order
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for you to lose the money that you
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invested with smart saver we would have
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to see if the US government going
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insolvent and not being able to pay
[882]
their debts back and we would also have
[884]
to be seeing major corporations like
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AT&T and CVS and think of the largest
[890]
companies out there going bankrupt it
[892]
would have to be the worst case scenario
[894]
of basically the government coming
[896]
crashing down as well as large
[897]
corporations in order for you to lose
[900]
the money you put in smart saver that's
[902]
being invested in these short-term bonds
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and the other thing that you have to
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understand is that there is about a four
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to five business days between the money
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entering your account and leaving your
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accounts so if you need immediate access
[915]
to your money this is probably not a
[917]
good option for you but if you would be
[919]
ok with that if you're ok with having to
[921]
wait four to five days for that money to
[923]
come back into your account then that's
[924]
not something that you would necessarily
[925]
have to worry about but I just believe
[928]
that it's worth mentioning and there are
[930]
a couple of other benefits that are
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associated with investing in US Treasury
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bonds so
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want to go ahead and share with you guys
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what those are number one as we said
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they are pretty much the safest
[940]
investment out there outside of an
[942]
fdic-insured Bank investment and those
[945]
do not pay enough typically to outpace
[947]
inflation or you do not have liquidity
[949]
you don't have ready access to your
[951]
money the second thing is that US
[954]
Treasury bonds are exempt from local
[956]
taxes and state taxes so if you're
[958]
worried about generating a large tax
[959]
bill that's going to relieve some of
[961]
that burden so it is a great investment
[963]
for those two reasons because they are
[965]
very safe and they also are easy on the
[968]
tax bill now is this the only option
[971]
when it comes to protecting the buying
[972]
power of your money absolutely not some
[974]
people look at CDs that are offered by a
[976]
bank some people look at money markets
[978]
but understand that if you do put your
[980]
money into a CD maybe you're seeing
[982]
three percent rates but typically that's
[984]
for a three to four year term and if you
[986]
take your money out early you're going
[988]
to get a penalty smart saver is
[990]
essentially offering you protection of
[992]
the buying power of your money with
[994]
pretty much complete access to that
[996]
money at any point in time if you're
[998]
willing to wait that three to five
[1000]
business day window for that money to
[1002]
come back into your account and like I
[1004]
said if you guys are looking to learn
[1005]
more about other options if you're not a
[1007]
fan of this you know I have a bunch of
[1010]
videos about investing and other ways to
[1012]
protect the buying power of your money
[1013]
and I'll also link up to that video that
[1015]
Jeff Rose did and if you guys do want to
[1018]
check out betterment or smart saver I
[1020]
have a link down below it is an
[1022]
affiliate link you guys don't have to
[1023]
use it but understand that by doing so
[1025]
you are helping to support my channel
[1027]
and allowing me to make more videos like
[1029]
this but thank you so much for watching
[1030]
this video
[1031]
like I said let me know in the comment
[1033]
section down below this is the first
[1035]
time you learned this lesson and make
[1036]
sure you are sharing this with other
[1038]
people who are basically losing money
[1040]
every single year by saving it in the
[1042]
bank but thank you so much for watching
[1044]
and I will see you guys in the next
[1045]
video
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