How To Create Your Own High Yield Savings Account | by John V. Krompas | October 2022
As a generation, we have been unlucky to live in a time of constant change, the latest being when low central bank interest rates end and double-digit inflation returns to eat away at our income. available. But we are also blessed with the widest available options in human history, both in terms of finances and education.
Since keeping money in the bank right now means losing money, because commercial banks haven’t raised their deposit rates, even though central banks continue to raise their benchmark rates, I’ll describe how you can create a structured product, similar to those offered by banks but adapted to your risk appetite and your needs, which will offer returns significantly higher than a simple savings account.
The concept is quite simple: Let’s say you have $10,000 in the bank right now. You can transfer the majority of it (e.g. 80-90%) to a digital bank, offering an interest-bearing savings account.
The reason I suggest you choose a digital bank is that they have much lower operating costs and need more cash and therefore are more likely to offer interest rates higher on your deposits. You should, however, ensure that you choose a fully licensed digital bank, so that your money is protected by a deposit guarantee scheme offered by the monetary authority that licensed the bank (if you are in the EU, that authority is most likely your country’s central bank or the ECB if you live in a country whose currency is the euro). This is very important because these are the savings of your life that we are talking about.
After getting the highest possible security rate for most of our money, we move on to the part where things get interesting. The remaining 10-20% of our deposits can be deposited into accounts offered by platforms offering p2p lending or cryptocurrency lending. Many of these platforms will offer interest on your fiat currencies because they need cash to operate.
However, it is important to keep a few things in mind when choosing these platforms:
1. Select platforms that have been around for a long time. As the money on these platforms is in no way secure, you want to minimize the risk of losing your money and you can do this by doing your research and choosing platforms that have proven themselves to be responsible over time.
2. Select platforms that offer liquid accounts. Since this is your savings, you might need it during a time of distress, so you should select a platform that will give you your money as soon as you request a withdrawal. Additionally, you will want to rebalance your money between digital banking and these platforms to keep the 80%-20% ratio stable over time.
3. Although you will be tempted to select the platforms with the highest interest rates, be rational and choose those that offer reasonable rates (3-5%) nothing good happens above 10% APR.
That’s it! You have your own structured product that offers significantly higher returns than a simple savings account. When your buffer reaches a certain threshold you won’t even have to set aside money from your salary to increase your deposits, you will simply have to move money from the high-yield component (the 20% deposited in the platforms) to the secure one (80% deposited in the digital bank)!
A word of warning: DON’T GET GREEDY, it’s money set aside for a rainy day, not your investment portfolio, always keep the majority of your savings in the secure account!!!
How I Structured My Own High Yield Savings Account
After a series of unfortunate events in my life I was forced to spend all my savings…As now I am starting to rebuild I decided I wanted my savings to continue to grow and came up with the idea described above.
So I decided to deposit 80% of the money I had put aside as savings in the BUNQ bank (not an affiliate link, just for your convenience), which offers a 0.27%, small but clearly superior to conventional banks. The remaining 20% is divided equally between Nexo* (a crypto platform) and Bondora* (a p2p lending platform) that offer both c. 4% interest and immediate withdrawals. Both platforms have been around for a long time and have passed the pandemic stress test without losing their customers’ money.
Times can be tough but as I said we have many tools to go on so don’t let your money rot in a bank but do your research to find out how they can do the best for you (that’s i.e. multiply 😛 ).
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- Disclaimer: This is not investment advice, you should do your own research before investing your money or consult a certified expert, I am only presenting my own ideas and experiences.
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Mintos – Possibly the only regulated P2P platform in the EU. They have recently started turning loans into formal investment instruments (called “Notes”). They also plan to expand and offer instruments such as ETFs in the future.
Revolution -The one that brings together all the other platforms. Revolut is the best solution for transferring money between investment platforms and bank accounts. They recently became a fully licensed bank themselves and offer a variety of products ranging from insurance and crypto accounts to interest-bearing deposit accounts (in some countries).
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