Marcus High-Yield Savings Accounts (HYSA) Giving the Highest Return Since Pandemic

This post may contain affiliate links. Please see my disclosure to learn more.

Wow! It’s finally happening! High-yield savings account rates are up. Today, we are seeing the highest return since the pandemic in 2020. Marcus HYSA (high-yield savings account) are at 2.5% but my readers get an additional 1% APY bonus if they sign up through my link here. That means that by signing up today, you can secure 3.5% rate of return on your savings for the first 3 months. I wrote about what HYSAs are here, but I thought I would provide an explanation as to why I this is the perfect avenue for short-term savings in today’s post.

HYSAs are low risk investment options for short-term savings:

HYSAs are low-risk investment options for short-term savings. How is this different from the stock market?

I like to use the stock market for my buy-and-hold strategy. Because of fluctuations in the market, the value of my investments could go up or down any day. The only way to beat the market is to buy and hold long-term. Historical data has proven that staying in the stock market for a long period of time is the best strategy.

The stock market’s volatility also means that I would not want to keep my short-term savings in it. Short-term savings refer to money that I am saving up for a particular event. In my case, my short-term savings was for the resumption of student loans. With the student debt interest rate at 0% since the pandemic started, we had decided to put our savings in a HYSA to earn interest on it over time. Unlike the volatile stock market, this rate of return is guaranteed, and can not go negative.

Examples of short-term savings:

Saving for a house
Saving for the birth of a baby
Preparing for student loan repayment to resume
Saving for next round of school tuition
Saving for an emergency fund
Saving for a wedding
Planning a trip/travel
Buying a new car

Why are HYSAs better than a savings account?

Savings account at other banks have a much lower interest rate. For example, I do my banking with Chase bank and at the time of writing this post is 0.01%. Compare that to 3.5% that you get by using my referral sign-up bonus! That means that if you have $10,000 in your savings account, you will earn $1 from Chase, and $350 from HYSA every year. That’s a no-brainer for me.

Why choose Marcus for your HYSA?

Marcus provides a return rate that is 4x the national average. It also is FDIC-insured for up to $250,000. That means you can put your savings here to rest without worrying about the value going down. Marcus in particular is backed by Goldman Sachs, a long trusted company. They also have same-day transfers up to $100,000 to and from most banks. This means that your money is readily available should you need it.

Would it be better to pay off credit card debt or save in a HYSA account?

While HYSAs are perfect for short-term savings, I think it is always better to pay off credit card debt first. The reason is because credit cards charge an interest rate much higher than what you would earn by stowing away dollars in a Marcus HYSA. That being said, if you struggle with credit card debt, may I recommend The Credit Pros and their expert services? (*aff) Paying off credit card debt was the first thing we did on our student loan repayment journey, and it was the thing that catapulted us forward towards financial independence. I highly recommend!

Photo by Konstantin Evdokimov on Unsplash

This post may contain affiliate links. Please see my disclosure to learn more. A friendly reminder that this is an opinion piece written by yours truly and should not be considered professional financial advice.

Finance: High Yield Savings Accounts with Marcus

What is a High Yield Savings Account?

A high-yield savings account (HYSA) is something worth looking into. It is the same as a savings account that you would normally have at your financial institution (aka bank) but it yields higher rates (as the name suggests). A savings account at Chase bank will likely lead 0.01% interest per year, whereas a high-yield savings account can yield 5.5% with my referral link! (This post has been updated as of 2/15/24). That’s 500x more than a traditional Chase account! This may not seem like a lot, but let’s take an example to demonstrate what a difference this can make.

Let’s say you have a financial goal of saving for a home. You currently have $20,000 in the bank, sitting idle waiting for a few more pennies to roll in before house searching.

If it was sitting in a Chase account, you would make $2 over the course of the year. But, let’s say you put it in a high yield savings account such as Marcus which is currently earning 5.5% per year. Then you would get an additional $1,110 by the end of the year for doing nothing other than choosing a different place to store liquid cash. That is almost an extra $100 a month!!

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About HYSAs

There are many options for HYSAs. Some offer you a sign-up bonus, and I know of a friend who treats HYSAs like credit card travel hacking. He signs up to get the sign-up bonus, then transfers the money to the next HYSA. This wasn’t on our checklist of requirements, however, below I detail what I would consider to be a good HYSA.

There is no fee associated with putting in or pulling out money from high-yield investment accounts. You can transfer directly from your bank or financial institution. There is no amount of time that you are required to leave it in the HYSA, although the funds may not be available for the first few days that you transfer it. Regardless, it starts earning interest on the day you transfer. And there is no minimum deposit. If possible, you want to choose an FDIC insured institution.

One should always remember, however, that the interest you gain is a taxable amount. Anyone who gains more than $10 in interest from a savings account will file Form 1099-INT which your bank will send you to include into your tax filings. So if you are gaining interest and pulling out your money, do make sure to set aside a little bit of that interest to cover the taxes. You are only taxed on the interest earned, not the contribution (aka the money you put in).

Shall I Always Put my Extra Money Into My HYSA?

The short answer is no.

Typically, you would want to invest in long-term investment accounts to get a higher rate of return. However, if you have short-term goals that you are saving up for, using a high-yield savings account is a great strategy. You don’t want to do active investments that are high-risk if you want to buy a home. It would be a shame to save up all that you need for a down-payment and then lose it all in an active investment. Plus, active investment isn’t our choice of investment strategy anyways. I wouldn’t recommend it, not because I have a low risk tolerance but because I honestly believe that no one can consistently beat the market. On the flip side, everyone can consistently make smart financial decisions that would earn them more money. More on this a different day.

Using Marcus HYSA In Our Student Loan Repayment Strategy During COVID-19

We just recently opened up our own high yield savings account with Marcus by Goldman Sachs. Prior to COVID-19, we did not have such an account because we were funneling all of our money towards my student loan, which had an interest rate of 6.5%. The more we paid it down, the less interest we would pay over time.

However, since COVID has reverted the interest rate of public student loans to 0%, we reduced our monthly contribution to my loans from $6.5k to $1k. We then funneled all the extra cash we had into a high-yield savings account to earn interest. Before the student loan forbearance period ends on September 30, 2020, we will funnel all that money plus the interest earned into the debt.

It was a smart decision because when the COVID stay-at-home mandate started, everything was up in the air. We wanted to keep liquid cash in case of an emergency or a drastic change in income. We did not know if we would both be without jobs, or the extent to which the economy would be affected. Although we already had an emergency fund, the world-wide response to this pandemic was new to us and we did not want to take any chances. We approached it from a defensive stand-point. Surprisingly, it has worked well for us.

If you are paying down student loans, I would say there is still time (three and a half months!) to open a high yield savings account and earn a little interest passively. Then, without missing the deadline, make sure to funnel what you would normally (and then some) towards your student debt by September 30, 2020.

Also, some may ask, “Why do you still pay $1k?”. My minimum monthly payment is just under $1k normally, and although forbearance was granted to everyone without having an effect on your credit score, what most people don’t know is that forbearance still shows up on your record. It won’t mess up your record, technically speaking, but it can affect you financially. If you buy a home in the near future, for example, the mortgage lenders will see that you entered forbearance in 2020 and even though your credit score is 800, it may still affect their decision to lend to you. I didn’t want that on my record so I continued to pay it as if nothing happened. I simply stopped being aggressively paying my debt for the time-being.

Why Did We Choose Marcus by Goldman Sachs?

There are a couple things that we liked about Marcus.

They are an award-winning savings account that provides a rate that is 4x the National Average. They have no fees and minimum deposit. They allow same day transfers of $100k or less to and from other banks. They link other bank accounts for incoming and ongoing transfers which makes it very easy for me to simply log in and send money. You can open a personal account and/or joint account. And the savings are FDIC insured up to $250k (per person when considering joint accounts). This means that Mike and I can have up to a million dollars in their high yield savings account that is FDIC insured. How?

Mike opens a personal Marcus HYSA – $250k is FDIC insured.

I open a personal Marcus HYSA – $250k is FDIC insured.

We open a joint Marcus HYSA – $250k is insured for Mike, $250k is insured for me.

Lastly, we chose them simply because our roommate, Kirsten, used to work for a Goldman Sachs company. It is a reliable company and we trust our money with them. Simple as that. I know it’s a bias, so if you wish to shop the market, you can always shop the options here. I know of many people who have been happy at CIT Bank, if that helps. If you happen to choose to open a Marcus High Yield Savings Account using my referral link, you can receive an additional 1% Annual Percentage Yield (APY) from what everyone else receives on your Online Savings Accounts for 3 months.

Bottom line. I think it would behoove everyone to open a high yield savings account because many of us do save for short-term goals. We are all about earning passive income. I like to call it, free money. If you are looking to learn more, these resources are a great starting point.

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How Switching Your Student Loan Forgiveness Plan Can Save You Thousands of Dollars!

This post may contain affiliate links. Please see my disclosure to learn more.

How would you like to save thousands of dollars a year, simply by switching the loan forgiveness program you are on? We know we did! A recent conversation with Travis Hornsby of Student Loan Planner informed us that we could speed up our loan repayment simply by switching from IBR to REPAYE! The information that Travis shared with us was so valuable, because it could in fact save us thousands of dollars on our student loans! That’s equivalent to refinancing to a lower rate, thus cutting down our repayment timeline, while still allowing us the safety net of being in a loan forgiveness program. After conversing with Travis for an hour, I would highly recommend Student Loan Planner as the starting point for any student or new grad looking for student debt advice.

So how do we save $$$ this year? It’s simple. All we need to do is to switch from IBR to REPAYE. Today, I will outline why.

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A Case Study: IBR VS REPAYE

We were under the IBR program since we embarked on this journey to repay our student debt of $574,000. Before you consider which loan forgiveness program you want to choose, you should probably read Finance: Student Loan Forgiveness Options: IBR VS PAYE VS REPAYE. We had initially chosen IBR despite the fact that the monthly payments would be 15% of discretionary income vs REPAYE’s 10% of discretionary income because of this one factor: IBR allows you to file taxes separately as a married couple and it will only consider the loan holder’s income, versus REPAYE which will consider the income of your spouse as well. Since Mr. Debtist also makes a six figure number, we figure that we would have the better deal using solely my income.

Here is an example of how to calculate that:

Let’s use estimates from our personal story to calculate the difference.

Assume that our loan is an even $550,000, my income (the debt holder) is $125,000 and Mr. Debtist’s income is $120,000.

Under IBR, they would calculate our yearly loan payment by multiplying my income by 15%.

125,000 * 0.15 = 18,750

Now we divide that by 12 months to find the monthly payment.

18,750 / 12 = 1,562.50

Therefore our monthly payment would be $1,562.50 under IBR.

Under REPAYE, we need to use the total household income of $245,000 to calculate the yearly payment, however we will only be paying 10% of our household income.

(245,000 – 1.5 * 16,460) * 0.10 = 22,030.85

To find the monthly payment, divide by 12 months.

22,030.85 / 12 = 1,835.90

Therefore our monthly payment would be $1,835 under REPAYE.

As you can see from this example, IBR would be the better payment plan because you would be paying the cheapest amount per month and allowing the program to forgive as much as possible.

HOWEVER, there is a rule with REPAYE that IBR does not have. REPAYE will subsidize 100% of the interest accrued for the first three years for subsidized loans, and 50% of the interest accrued after the first three years, which changes the game. Note, if you have unsubsidized loans or GRAD PLUS loans, they will only pay 50% of the interest accrued, period. Let’s see how.

Under REPAYE, the government will subsidize the interest that does not get covered by your minimum payment. In my case, I took out GRAD PLUS loans, so that would be 50% of the interest that accrues. We have already calculated the monthly payment to be $1,835.90. Let’s convert that to yearly payments.

$1,835.90 * 12 months = $22,030.85 owed this year under REPAYE

This year, based on last year’s income, we owe $22,030.85 in total payments under REPAYE. We also know that interest on $550,000 at 7% is $38,500. Therefore, our payments under REPAYE are not even enough to cover interest, as is usually the case with a loan this large.

So the difference is calculated as follows:

$38,500 – $22,030.85= $16,469.15 * 0.5 = $8,234.58

Which means that for our case, the government will subsidize over $8k per year! You would be missing out on thousands of dollars just by being on the wrong program! We certainly did.

Why We Stuck with IBR in the past

We decided to be under IBR right when I got out of dental school, BEFORE we decided to pay back our loans aggressively. The reason being in my first year, I only worked for the last three months of the year, having waited for my license to be approved after graduating in June. In my first year’s taxes, I made $25,000. So taking 15% of $25,000 would be cheaper than 10% of $145,000. Now in the second year, the numbers completely changed since I started working full time for the entire twelve months. My salary jumped from $25,000 to $125,000. The ultimate question: Why didn’t we make the switch?

In April of my first full year of work, we had decided to pay back the loans aggressively. Meaning, our monthly payments were MORE THAN the minimum amount required. In order for there to be excess interest accrued on the loan, our monthly payments should not exceed the interest gained, which was about $3,000. But since we were paying our debt like CRAZY, we were actually paying $6,500 towards the loans, so no interest was accruing and it did not matter if we stayed in IBR or went to REPAYE.

Or so we thought…

We were VERY wrong!

A Common Misconception

According to Travis Hornsby of Student Loan Planner, REPAYE calculates the difference between the interest accrued and the amount paid back on the loan at the beginning of the year. REPAYE assumes that you will only make your minimal payment each month, which means that they lock in the assumption that $11,500 would be accruing in interest (for our particular example). Every month, they will subsidize a portion of your loan to make up for the interest that will supposedly accrue, REGARDLESS OF THE MONTHLY PAYMENT YOU ACTUALLY PAY. It doesn’t matter if we pay $6,500 towards the loans or if we pay the minimum amount. Either way, REPAYE will subsidize the difference between the minimum payment and the interest that’s being charged. So we have actually missed out on an opportunity here! What’s passed is past, but we are definitely jumping from IBR to REPAYE ASAP!

What Switching from IBR to REPAYE will save us.

We need to make this jump because of the following:

It will save us tens of thousands of dollars in the long run.
Making the change will be the equivalent of refinancing to a lower rate without actually having to refinance! Which then gives us the safety net of staying in a loan forgiveness program. If ever life throws us a curveball (such as an accident, layoff, disability, sickness, or our worlds fall into chaos and we cannot work), then the loan forgiveness program will give us the flexibility to not HAVE to pay $6,500 per month.
After all the money we save, we can cut our repayment timeline down to 7.5 years!

Off course, not everyone under IBR should automatically jump to REPAYE! You have to pick the financial path that is right for you, considering your personality, your goals, your lifestyle, and more. If you are looking for sound advice on how to create a student loan repayment plan customized for your situation, don’t hesitate to contact Travis Hornsby, founder of Student Loan Planner, using my affiliate link. It will be a very rewarding hour! And check out my second podcast episode with Travis, to be released in 2019! Stay tuned.

Dear College Kid: Graduate from Undergrad in Three Years and Save $$$

Dear College Kid is a series I decided to write to my younger self, if I could somehow teleport myself via time machine to my late teens and early twenties. I hope other college kids find these letters, and garner some foresight that I myself had lacked. I hope it changes their lives.

Dear College Kid,

Are you in an undergraduate program trying to plan what classes to take? Or better yet, are you a high-schooler, looking far ahead into your future, trying to figure ways to save? Here’s some advice:

Try to graduate in three years or less, and save $$$!

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The first step: Stop the Negativity!

You may be saying to yourself some of the following negative self-talk, but I want to address them now and talk you out of that nonsense. Nip it in the bud, so to speak.

Avoid the following negative thoughts:

“Graduating in three years requires a special program, which my school does not have.” Not true at all! I myself graduated from a four year undergraduate college, in a three year span of time. All you need to do is hit your particular program’s requirements, and that’s it! Just make sure to plan ahead.
“Only Einsteins and nerds finish early because you need to be very smart in order to graduate in three years or less.” You need to be very organized to finish early, not necessarily smart. It may require a bit more effort, but it does not mean that some people are born with the ability to do this and others are not. Everyone should at least try. If you don’t end up finishing in three years, you should be just as proud to finish in three years and one quarter. Every little bit that you shave off of your schooling counts!
“Graduating early means I won’t have my FULL college experience! I will miss out on some of the fun my friends are having.” Actually, quite the opposite! Finishing school in three years freed up that last year when all my other friends were still in school. It gave me the chance to work three jobs, and I had a more flexible schedule than my friends who were still in college! While they had to plan for tests and study for exams, I was able to move my work schedules around to make time for lunch dates, or hang out nights. If anything, I was able to experience MORE than they did!
“What difference does an extra year make? Shouldn’t I just take classes that I am interested in or that I enjoy FOR FUN while I’m at it? What’s another couple of thousands of dollars?” If I could kick my young self for having this kind of mentality, I would. Back then, I did not understand the value of compounding interest. I did not have a sense of the value of time. I did not realize that something so small now, can make such a big difference later. The money you save from finishing undergrad early can be invested into something that will give you a higher return over time, rather than be taken out as a loan that will be charged interest over time. Instead of losing money, you could be earning money. Time is on your side, and investing early is the way to go!

Ways To Graduate Early

There were many things that I did to allow me to graduate one year early. If I had a do-over, I would do even MORE, to try to shave off a little bit more time. Here are some tips!

Take as many AP (Advanced Placement) or IB (International Bachelaureate) courses in high school as you can. I did the work in high – school. I took 11 AP courses in high-school. The great thing about these is that some colleges accept certain AP classes as credit towards general education college courses! I entered my first year of college as a “sophomore” and had first choice in which courses I wanted to take, which made it even easier to plan ahead!
Plan your course of action. When I entered college, I was given a list of classes that I was required to take in order to graduate early. I kept that list throughout my whole college career and when it came time to choose classes, I would simply go through the list and find classes that I wanted to take but were also required. It wasn’t until my final trimester (we were on the trimester system) that I took a class that was not a requirement, for fun. Why did I do that? Because it gave me the units I needed to be considered a full-time student, which had a flat rate and which actually made the tuition cheaper than if I paid per unit to be a part-time student. Go figure!
Take as many units as you can handle. The minimum units you need to be considered a full time student was 12 units. You can likely graduate in four years taking 12-15 units a trimester. But I had other plans. I was taking 16-20 units a trimester, and one particular trimester, I believe I took 22 units. The exception was my final trimester, where I took only 12 units, the minimum to be a full -time student.
Stay focused. You are here for SCHOOL. The biggest excuse I heard recited to not take more than 12 units at a time was that early twenty-somethings want to enjoy life. They don’t want to be focused on JUST school work. They want to have time to go to parties, hang out with their friends, make new experiences. But you are at college for school. Focusing on that doesn’t mean you won’t get those new experiences, or have a good time.
Don’t listen to the naysayers. When I told others that I was going to finish college early, there was a lot of pushback. In the early stages, I had a lot of people telling me it would be difficult to do, that I would stress myself out too much and hate college all-together. When that didn’t happen, they said that I was missing out. As it got closer towards the end of my college career, I started having people trying to convince me to stay. “Just take classes for fun!” To which I replied, “I’d rather live life, for fun.” Don’t listen to the naysayers who think you can’t do it. Don’t listen to people trying to convince you you’re missing out. And definitely don’t listen to those who try to convince you to stay even longer, and spend more money or take additional loans. The person you should be living life for is yourself, and your future self will thank you.

If you need further convincing, maybe math will do the trick.

Tuition Costs Saved by Graduating in 3 Years: $8,000

Additional Money Earned by Working 3 Jobs in the Final Year: $18,000

The Difference: $26,000, which I funneled into student loans and credit card debt.

Hope this helps kick ya in the rear and get you faster towards getting out!

Sincerely,

TheDebtist

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