I’ve been swamped lately. As a result, the reader questions have been piling up. There’s a huge backlog. Today I’m going to tackle two related questions at once. Do you have an opinion on the best place to save your money? Chime in below!

Where should I start saving?
First up, ashleyD commented on my recent post about using financial spreadsheets. She’s beginning to get control of her finances, but she doesn’t know where to put her money. She wrote:

I need help. I’ve been reading for a few months, but I haven’t caught on where to put my dollars. We’re currently using the snowball method to pay off our debt. We’ll be debt-free in June 2010, or maybe before. I feel an alarming need to put some money somewhere now. I’ve sold off clothing and I’m making a bit of money on the side with eBay. Where should I open two $100 accounts? We’re 25 and 29.

Congrats to Ashley for starting on this at a young age. It’s fantastic that she’s paying off debt, making extra money on the side, and looking to save. I didn’t take these steps until I was in my mid-thirties, and I wish I had started sooner.

I think it’s a good idea to begin an emergency fund as soon as possible. An emergency fund is like self-insurance: it’s a buffer against unexpected things that might come your way. But where to put the money? Based on my experience, there are two options that make sense.

Option one: Rewards checking
If Ashley knows she has self-discipline and can refrain from touching the money, she might consider a rewards checking account at her local credit union. From what I’ve found, these offer the best rates anywhere, though they do carry requirements in order to obtain the rate. (You have to use your debit card a certain number of time each month; you have to receive electronic statements; etc.)

Here’s a huge list of rewards checking accounts by state.

Option two: Online savings
On the other hand, if Ashley suspects her self-discipline might falter (as mine always did), she’s probably best served by opening a high-yield online savings account. I elected to use ING Direct, though there are many great options.

For me, the advantage of an online savings account is that the money is completely separate from my everyday checking. If I want to access the cash, I have to go through the process of transferring it from ING Direct to my credit union. The very act of doing so prevents me from spending the money recklessly. Another advantage is the ability to set up automatic monthly deposits, which helps me to save on “autopilot”.

What advice can you offer Ashley? If you were just starting to save, where would you put your money? How would you structure your savings? Would you set aside a certain amount every month, even if it was just $10? Or would you wait until you had large contributions to sweep into the account?

Should I chase interest rates?
Meanwhile, Bo has already started to save. He’s wondering if he should chase interest rates in order to make a little more money. He writes:

While I’m an ING Direct disciple like yourself, I’m awfully tempted to jump ship with the recent interest rate drop.  ING is now at 2.2% APY, while HSBC Direct is at 2.45% APY and E-Trade is at 2.5% APY. Let’s say you have 50K parked — you’re talking an extra $125 or $150 a year.  I know it’s not a lot, but if I was walking down the street and saw $150 laying on the sidewalk, I would definitely stop to pick it up. What say you?

This is a great question. In the past, I’ve come down against rate chasing, but that’s mostly because I think it’s a hassle — and because I didn’t have much saved. Now that I have more in savings, I’ve begun to see the appeal of picking up a little extra money for very little effort.

Still, I’m not sure it’s worth my time. My emergency fund has a balance of $10,394.04, which is earning 2.20%. If I were to move it do a different bank, I’d probably choose FNBO Direct, which is currently offering 2.60% APY — 0.40% over my ING savings. How much difference would that make in a year? $41.58, or $3.46 a month. I’ll be honest: even though FNBO is a heavy advertiser at Get Rich Slowly, I’m not willing to move my money out of ING Direct for $3.46 a month. FNBO gets good reviews, but they’re an unknown to me. I love the ING Direct interface and the multiple accounts.

But if I had $50,000 in the bank instead of $10,000? Would I move from ING Direct to FNBO Direct for $200 a year? As Bo says, I’d stop to pick up $200 from the sidewalk…

What about you? Would you switch banks over half a percent of interest? Over one percent? Would it make a difference if you had a larger or smaller balance? Are there any other tips you can offer Bo as he shops for online banks?