In the last post I described the basics of a Roth IRA, however, I neglected to discuss what Braden and my personal financial plan is (i.e. how much are we going to contribute each month to retirement, what is our savings rate etc.) In order to discuss our plan, I wanted to continue to introduce ideas so that when we describe our plan you can understand all the different aspects of what we are talking about. I’m not saying its overly complicated, I’m just saying there are different basic definitions we had to learn, so we wanted to share them with you!
When transitioning to residency, what most people think about is maxing out a Roth IRA and doing this from the start of residency. The problem with that is starting medical residency with no money is different than having had a stream of income for the last year. Medical residents generally have little to no savings and no emergency fund. And as we discussed in the last post, we don’t want to contribute to a Roth IRA unless we are sure we won’t be needing that money in the near future (because you pay taxes when you contribute and pay a 10% withdrawal fee if withdrawing earnings for a non-qualifying reason). This means our first focus is building a savings account and what better way to build a savings than in a high yield savings account!
What is a high yield savings account?
– It is a savings account which gives you a higher percent on your savings than a traditional savings account
– In an average savings account, you receive 0.10% APY (APY = annual percent yield, meaning if I have $100 in my savings account each year, they give me 10 cents)
– In a high yield savings account, the rate is higher at over 2% (e.g. If I have $100 in account, I now get slightly over $2)
-Therefore, the more money I have in the account, the more my return will be (e.g. 2% return on $15,000 = $303.01 per year versus $15.00 for a savings account with 0.1% APY)
– This makes high yield savings accounts the ideal place to have an emergency fund or storing savings for a future event
– High yield savings accounts also come with low or no monthly fees, especially if you set up a recurring deposit
– You want to look for an account that says “FDIC insured” and up to what amount, because if you were concerned about a bank were to go bankrupt you would be insured to that amount. Generally they are insured at least to $250,000+, however, they will say exactly to what amount they are insured on their site.
Examples of high yield savings accounts: Wealthfront – 2.57%, Betterment everyday – 2.69%, Citi bank – 2.37%, Ally – 2.10%
– You want to look into how money can be transferred into the account. For example, Marcus by Goldman Sachs offers 2.15% APY but you have to mail in a check when you want to deposit money. Lame.
– We chose Citi bank as they offer both mobile and electronic transfers, provide an ATM card, and there is an ATM right by our hospital (Citi High Yield Savings is not available in California, but in Oregon it is so we used our home address). A couple of our friends are using Wealthfront as it has a higher APY. For us we chose a slightly lower APY but we wanted the ability to withdraw immediately if needed. You do you!
What do you guys think of high yield savings accounts? Which ones have you tried, and did you like it? Comment below on your thoughts!
https://www.nerdwallet.com/best/banking/high-yield-online-savings-accounts
https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp
Couple of Surgeons 