Helping Your Aging Parents With Money is a new series highlighting financial topics you may need to discuss with an aging parent or relative. It was inspired by recent events in our own lives and Cameron Huddleston’s new book, MOM and DAD, We Need to Talk. (We are big fans of Cameron’s book; you can read our review here.)
If you’ve always discussed important issues openly with your parents, bringing up financial topics probably won’t come as a surprise. But if money talk has been taboo through the years, you’ll need to tread lightly. There are a lot of emotions around money, and aging parents may be very concerned about sharing details of their financial lives.
In this series, we’ll talk about money conversations we’ve had with our parents and close relatives. Feel free to add to the discussion by adding comments or asking questions.
My mom took me to our hometown bank to open a passbook savings account when I was 8 years old. I deposited my birthday money and proudly left the bank with the deposit details written into my little paper passbook.
When I started babysitting and delivering newspapers at 12, I went to the bank at least once a month to deposit money. Remember, we didn’t have Venmo back then. I got paid in cash for babysitting and had to collect cash each week from many of my newspaper customers.
I’d tag along with my mom when she went to the bank to deposit my dad’s paychecks and rent checks from their tenants to make my own deposits.
When I got my license, I’d drive past my bank at least a few times a week on my way to work as a lifeguard and waitress. But I didn’t need to stop at the bank very often because of payroll direct deposit.
Even though I didn’t go into the bank as often, I knew I could go there anytime I needed money. My money was safe. And my parents felt that way about their money too.
Our community bank was familiar and it represented security.
I left my money in that bank until I graduated from college and got my first teaching job. Then, I put it in my new local bank. My parents left their money in that bank until they moved out of state at retirement. They opened accounts at a community bank in their new city too.
The Problems With Hometown Banking
Whether you use a hometown bank or keep your money at a local branch of one of the biggest banks in the country, you (and your aging parents) might have better options to consider for at least some of your money.
I still keep enough money in my local bank to pay monthly bills and run a small cash balance. I can also deposit cash there when I need to.
But I’ve moved money I’m saving (not investing) in my emergency fund and sinking funds to a high-yield savings account in an online bank. My brothers and I have also worked with our aging (80+-year-old) parents to do the same thing.
Issue #1: Interest
While you appreciate the convenience of being able to go to the bank, the money you have in your accounts probably isn’t earning much interest.
Many traditional brick-and-mortar banks don’t pay more than .01% APY on standard savings or checking accounts. And some pay even less than that.
Which means if you keep an average balance of $1,000 in your account over the course of a year, you will earn 1 cent a year in interest. Just. One. Penny.
If you keep extra savings or an emergency fund in these accounts and have a balance of $5,000 – $25,000 during the year, you’ll earn between a nickel and a quarter in interest for the year. That’s it – between 5 and 25 cents.
Even though it’s easy and it’s what you’ve always done, your money isn’t making any money. If you factor in inflation, you’re losing money over time.
Since this isn’t money you’re investing for your future, you could probably be earning more interest than you are making at your local bank.
If you are using Certificates of Deposit (CD’s) as a way to earn more interest, that helps. But CD’s might not pay as much interest as many online banks pay. Another negative? Your money is probably tied up for months or years in the CD unless you pay a penalty.
At a number of online banks, you can earn between 1.5 and 2.2% APY in a high-yield savings account. Several online banks have no minimum deposit requirements and you don’t have to carry a certain balance to earn interest.
That $1,000 savings account balance would earn between $15 and $22 a year – a lot more than a penny or two from the brick-and-mortar bank. $5,000 – $25,000 in savings earns between $75 and $375 a year depending on how much is in your high-yield account.
That’s a heck of a lot more than the nickel or quarter your hometown bank pays.
While it might not seem worth it to move your money to earn a little more than a dollar a month for lower balances, the more you or your aging parents have saved – the more you’ll earn in a high-yield savings account.
Issue #2: Fees
It’s important to look at your statements to see if you are paying maintenance fees to the bank each month. These account fees can range from $4 – $20 a month depending on the type of account you have and the balance of the account.
You can get out of those fees at most banks if you maintain a minimum balance (which isn’t earning much interest), have paychecks direct deposited, or have a mortgage or other large loan from the bank.
But those aren’t the only fees you might pay. You could have overdraft and overdraft protection fees. You’ll probably pay some check fees at some point, along with ATM and debit card transaction fees.
If you travel out of the country, you might have to pay foreign transaction fees. Not using your account? You can be subject to inactivity fees. A bank may also charge you a fee if you want to close your account.
That’s a lot of fees.
Online banks have fees too. But there are fewer of them and when they do charge a fee, it’s usually a lot less than those at a traditional bank.
For example, stopping payment on a check at my hometown bank costs $37. My online bank charges $15. If I bounce a check (insufficient funds) at my local bank? The charge is $37 per item. The online bank charges $25 and it only allows one fee per day.
The online bank also gives free checks, debit cards, and cashier’s checks. I get charged for all of those at my hometown bank.
Making the Move To Online Banking
It’s hard to talk to your aging parents about moving some of their savings to an online bank if you haven’t done it yourself.
I put it off for a while and after finally opening a high-yield savings and interest-earning checking account at an online bank, I was mad I waited so long. I made more in interest in one month by putting my emergency fund in a high-yield savings account than I did over ten years of having the money in my local bank.
While I procrastinated, my money was just sitting there not earning money.
Making the move to online banking can definitely be scary for those who don’t trust that “online” banks are safe. It also may be scary for those who lack experience with computers and apps on their phone.
We talked to my mom for a few months about online banking and didn’t rush her to make any changes. We also started very small by just suggesting she move just a few thousand dollars when she opened the account.
After she got a few monthly bank statements showing she was earning “dollars” and not “cents” each month, she was hooked. We slowly helped her move more cash to the account over the next few months.
My mom can still go to her hometown bank to deposit money and checks and get out cash if she needs it. But she knows now that some of her money is in an account making more money – instead of just “sitting” in the local bank earning almost nothing.
Final Thoughts On Online Banks for Aging Parents
A 2019 GOBankingRates survey found that 69% of Americans didn’t realize online banks offer higher interest rates than traditional banks. Some people also thought online banks charged higher fees and weren’t FDIC-insured – which isn’t true.
Stealing bank account information and having money stolen from accounts is a major concern for older adults. So when you talk with your aging parents about online banks, make sure you give them plenty of information about bank security.
Be patient and let them consider making a move to an online bank only when they’re ready.
Many people are very loyal to their hometown financial institutions. Because of the customer service and convenience, they have no interest in changing banks. But when they see how much more they can earn in interest from a high-yield savings account at an online bank, it can quickly change their minds.