A reader is disgusted at the painfully low rates his bank is offering.

Question: My bank is a big national one, and I won’t call them out by name. But man, does their savings account rates suck. I’m talking less 1 percent interest! I Googled around for higher rates, but they were mostly the same. I finally saved a couple grand in my new job and don’t want to blow it. I plan to put one grand toward my credit cards and another in the bank. But it doesn’t seem worth it. Any thoughts?

— Jason in Atlanta

Howard Dvorkin CPA answers…

My first thought is: Forget the savings account. You say elsewhere in your email that you’re carrying just under $5,000 on three credit cards. All of them are charging you around 13 percent interest. The math seems simple: Earn 1 percent in a bank or save 13 percent by paying down those cards.

It gets less simple from there.

Saving for a rainy day

You don’t mention if you have an emergency fund. The concept is simple: You need enough savings to pay your bills for a certain length of time, just in case you lose your job, get sick, or face an unavoidable major expense (like a home or auto repair).

How much you should keep in your emergency fund is a matter of some heated debate among financial experts. U.S. News says 3-6 months, while Dave Ramsey suggests a flat $1,000 until you’re out of debt. Other experts fall somewhere in between.

I see the wisdom in each argument, but here’s mine: Even $500 is better than nothing. So don’t get hung up on amounts, just get into the habit of saving.

Other options

Let’s assume, Jason, that you put $1,000 of your savings toward your highest-rate credit card. Let’s also assume you want to preserve that other $1,000 as an emergency fund, but as you said, you want to earn more than a measly 1 percent.

You have options. Money market accounts offer slightly higher rates and are FDIC-insured, but they have some restrictions, such as high minimum balances. You could also attempt a CD ladder, as explained by my friends at Bankrate, but this limits your access to the money to every six months.

However, my recommendation is to simply not worry about interest rates on $1,000. At 1 percent, you’ll earn $10. Even if you earn 5 percent, that’s only 40 more dollars. Focus instead of keeping that $1,000 for a rainy day and whittling down those credit card balances. If you need help with that, call one of our certified credit counselors for advice at 1-888-503-5563.

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About the Author

Howard Dvorkin, CPA

Howard Dvorkin, CPA

I’m a certified public accountant who has authored two books on getting out of debt, Credit Hell and Power Up, and I am one of the personal finance experts for Debt.com. I have focused my professional endeavors in the consumer finance, technology, media and real estate industries creating not only Debt.com, but also Financial Apps and Start Fresh Today, among others. My personal finance advice has been included in countless articles, and has appeared in the New York Times, the Washington Post, Forbes and Entrepreneur as well as virtually every national and local newspaper in the country. Everyone should have a reason for living that’s bigger than themselves, and besides my family, mine is this: Teaching Americans how to live happily within their means. To me, money is not the root of all evil. Poor money management is. Money cannot buy happiness, but going into debt always buys misery. That’s why I launched Debt.com. I’m glad you’re here.

Published by Debt.com, LLC