Most people make the assumption that a savings account is the best way to save their money; after all, it’s free money being earned by your money just sitting in an account. Of course, that means that you are doing yourself a huge financial favor, right? Wrong; well, kind of wrong. Interest rates these days are absolutely awful. They’re low and unimpressive, and they’re just not all that exciting. There’s nothing to write home about when it comes to the interest you’re earning on your savings these days. What there is to consider, however, is whether or not there is a better way to save and earn money at the same time. Here is the deal; you can earn more money with cash back credit card rewards than you can on your savings account these days. But how is that even possible, and how is spending money going to save you money? Sit back, get a pen and some paper and get ready to be schooled on how spending is actually going to save you money. You, my friends, are quite welcome.
How it Works
You have an interest–bearing account in which you have a nice $2500 savings. That sounds good, right? Right; because any savings at all is good savings. Now, you also have to think about the fact that you have interest being earned on that account, so the $2500 you have in there is actually a lot more, right? Well, no; not so much. Let’s say your APY on this account is at 0.75% (and no, it doesn’t sound like much because it is not much, but it’s more than the average at the moment, so it’s pretty generous). If you save and save and save for the entire year on this, you’re earning less than $20 in interest over the course of the entire year. You’d save more money the entire year if you kept your money in a box under your bed and skipped buying a latte once a month for the entire year (three times that amount, to be precise). So with that said, your savings account is actually pointless.
If you have a cash back credit card, for example, you might earn some more money. It’s sad, really, but it is true. Chase, for instance, has a card that allows you to save a lot of money in three specific places every quarter. You can earn 5% cash back on purchases up to $1500 at three places – they change quarterly – all year long. These are usually places like the gas station, the grocery store, movie theaters and restaurants. Most people go to those places – and all people go to at least two of those places. So if you were to spend the maximum $1500 every three months at those places and earn your 5% cash back on each purchase, you’d earn $75 cash back every three months. That’s REALLY nice. What’s even nicer is the fact that this does not consider the fact that you earn 1% cash back on everything else you spend. So if you spend $1000 per month otherwise, you will earn another $10 per month in cash back. You could potentially earn $420 a year this way.
That’s big savings, but it’s also important to understand that this might not work for all people unless they really know how to make it work. There are some considerations that you have to make if you’d like this to work for you.
Don’t Spend too Much
You can easily become distracted by the lure of earning points, and this can cause you to overspend in a way that is considered dangerous. Instead of doing this, beware of the fact that you will never earn as much as you spend, so sometimes not spending money is the best way to save. Actually, not spending money is the best way to save, but you get what we are saying here.
Pay in Full
That bill you get at the end of the month must be paid in full and on time. You will not earn much in terms of cash back if you’re not paying those bills in full, which means now is the time to start paying and stop spending. Use the card instead of cash to pay for your groceries, gas and your monthly expenses so that you can earn the points, and then take the cash you would have used to pay for those things to pay off the bill in full each month. You cannot earn cash back and make the best possible financial decisions if you do not pay your bill in full each month.
Always Pay on Time
If you are even one day late paying your bill, you might incur late fees that negate the cash you earned. You might see a higher interest rate come in, your credit will be negatively affected and your financial future will be placed in jeopardy. It’s important that you remember you should always pay your bills on time so that you do not have to face any of these financial issues. But it’s also important to remember that you should keep your finances in order prior to using this method of saving, as well.
We aren’t suggesting that you don’t save your money; you should save it. But you can also earn more ‘savings’ by spending the money you’d spend anyway. We are also not suggesting you go on a spending binge to earn more cash back, but we are suggesting you pay for things you need and would have purchased anyway with a cash back card such as the Chase Freedom card so that you can earn more money. It is the best way to make your spending turn into savings. You would have spent that money anyway at the supermarket and on your monthly expenses, so why not go ahead and let someone pay you to spend that money? It’s a deal that you cannot just ignore.
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