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Use A High Yield Savings Account As A Faux “Offshore Bank Account” To Save Money

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The Good Life, USAdvantage Plans

Original Photo By Flickr User Visualpanic under the Creative Commons.

Ever notice how the only time that someone uses the word “offshore” that it’s followed by “bank account”? So sinister. In my mind, offshore bank accounts are relegated to the obscenely rich who need to avoid taxes. Also possibly launder money; I’m not sure, but I do watch a lot of movies.

While I’m certainly not advocating anything illegal, it’s possible to use the idea of the offshore bank account to trick yourself into saving more money than you think you can.


High Yield Savings Accounts

A few years back, before this entire “recession” thing, high yield savings accounts were all the rage since they offered interest rates as high as 5% (compared to .25% at your average bank savings account). Since then, interest rates on high yield savings account have dropped pretty dramatically. For example, HSBC has recently dropped their interest rate down to 0.50%, a far cry from the heyday of high interest accounts but still, in my opinion, still a deal.

Most of these accounts are completely Internet based, meaning that you’ll never be able to go to a brick-and-mortar branch (although these banks do often have telephone and e-mail support). The idea behind the online-only aspect of high yield accounts is that the bank doesn’t have to provide any of the physical branches, which means reduced overhead and the ability to offer you higher than the average interest rate on your account.


The “Offshore Account” Effect

While the interest rates aren’t as compelling as they used to be, there’s still merit in “high” yield savings accounts because of something that I’m called the “offshore account” effect. In a nutshell, establishing a separate, long-term savings account that is different than your day-to-day bank helps you save more money, essentially, by creating barriers.

These days most people have access to their bank accounts online and know how absurdly easy it is to transfer money from their checking to their savings account. Having a separate account with a different bank that slows down the process of transferring money makes it more likely that you won’t touch it. Most online savings accounts have a multitude of security measures to protect your account (e.g. multiple passwords, pin numbers, etc), which can honestly make it a pain to access your account. That small but important barrier can help act as a check to your desire to impulse buy that one new thing you want.

Plus, as nerdy as it may sound, there is something fun about pretending that have an offshore bank account; it’s as if you have secret money tucked away for some grandiose adventure or master plan or a parachute in case you need to flee to Switzerland. In other words it’s a way to frame the idea of saving money as something cool.

For me, it’s the idea of that I’m some sort of international spy, but for you it could be anything. Seriously though, there’s pretty much nothing cooler than being a spy. Nothing.


Getting Started

If you’re interesting in trying out a high yield savings account I have two recommendations. First, it goes without saying that you should do some research before you connect anything to your bank account. A quick Google Search for high yield saving accounts will pull up a slew of ads related to high yield savings accounts from Barclay, HSBC, ING Direct and the like.  I recommend going with a bank that you’ve actually heard of before and is explicit about the actual interest rate it’s going to give you.

To get started with a high yield savings account, I recommend starting small and having it automatically draft money from your account on a monthly or bi-monthly basis. Depending on your budget, you can start of with as little as $25 and still make manual transfers to your account when you have some extra scratch.




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