Originally Posted by
creditsam
How is 7% APY on 10k = 300 after taxes?
It's 700 minus taxes...
Are you suggesting a smaller APY rate is better because then u pay less in taxes? U may as well aim for 0% to pay 0 taxes
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1) 7% APY includes the effect of compound interest. if you already have 10k in the account, any interests earned during the year is above the 10k, which do not enjoy the higher interest rate. hence it is impossible for you to earn $700 per year. at best, it is 6.785% or $678.5
2) US median income is about 50k, which correspond to the 22% tax bracket. you add in state and local taxes (it varies, but let's say 10% total*) and 7.65% for FICA. this brings your total taxes to 39.65%. i will just round this off to 40%, so the interests after taxes is $407. for people who earn more and hit another income bracket, this number is going to be smaller
of course, the numbers would be better for some and worse for others depending in income and where you live
*the lowest state and local taxes per capita is $4,722 (
State and Local Tax Collections Per Capita by State, 2025)
Originally Posted by
creditsam
Also, you can open an account for ur spouse if you want 20k.
There are also a few of such accounts with varying maximum amounts , some of which are over 10K.
You can do the same thing with multiple different Banks and different accounts if you want to do say 50k.
I just picked it as an example.
if i open an account for my wife, the costs to me also double, so no benefit there. unless you are hoping that the wife doesnt work. but i think most family are dual income nowadays. similarly, every additional account i have incur costs and hence give me marginal returns for my efforts
one can do what you suggest here, have the headache of maintaining many accounts, face decreasing interest rates, have their interests taxed and lost as payments to you, or one can just invest those money. as the interest rate falls, this is going to make less and less sense mathematically; even if the need for your services remain, they can no longer justify your services
also, many of these CUs have some requirements; they maybe geofenced or required some membership or donation or etc. the initial effort to set up these accounts also means the population is more niche. and for people who are willing to go through such lengths to set up these accounts, are they more likely to do 15 transaction themselves or will they pay $108 for the service? my bet is on the former