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Middle-class Americans are tripping and falling into costly financial traps cleverly set by big banks — and they’re getting stuck there while the banks drain their wealth.
So says personal finance influencer Vincent Chan, whose recent YouTube video makes a compelling case for how banks use two common financial levers — savings and debt — to benefit their bottom line at the expense of their customers.
Is Chan right? If so, how can you spring yourself from these traps and start building real wealth?
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Trap 1: Low-interest savings accounts
Many middle-class Americans trust traditional savings accounts for security, but with their interest rates barely above zero, they do little to grow wealth. The national average savings rate is just 0.46% as of August 2024 — far below inflation — meaning the value of your money is shrinking over time.
For example, $10,000 in a savings account earning 0.42% interest will net just $42 in a year, while inflation erodes its purchasing power by $250. This slow leak can seriously impact your long-term financial goals.
If you want to make your accessible cash work for you, consider a no-fee checking and savings account with SoFi.
You can enjoy no-fee overdraft protection, early paycheck deposits, and access to over 55,000 ATMs within the Allpoint network.
Speaking of deposits, sign up now and you can earn a bonus up to $300 for setting up direct deposit.
Another option is to invest in low-risk, higher-return vehicles such as certificates of deposit (CDs), money market accounts, or treasury bonds. These options often require locking in your money for a period of time, but the returns can be significantly better than any savings account.
With Discover CD — an online banking platform — you can buy certificates of deposit for varying terms – ranging from 3 months to 10 years, depending on your needs.
Right now, Discover CD offers a 4.10% APY for CDs with a one-year maturity — which is significantly higher than the average 0.42% interest offered by most banks on traditional savings accounts.
One thing to note about CDs: If you withdraw the money before the end of the term, you’re likely to face penalty fees.
If you want to compare more savings options, check out the Moneywise Best High-Yield Savings Accounts to see a list of accounts that have interest rates above the national average APY of 0.46%.
Read more: Rich, young Americans are ditching the stormy stock market — here are the alternative assets they’re banking on instead
Trap 2: Failing to leverage debt
Debt has a bad rap for good reasons. But used wisely, it can be a powerful wealth-builder. The key, Chan believes, is knowing the difference between good debt and bad debt.
High-interest debt, like credit cards, drains your finances, while low-interest debt, like a mortgage, can help build equity in appreciating assets like real estate. To build wealth, avoid using debt to buy depreciating assets and always tackle bad debt before taking on more debt of any kind.
If you have “bad debt” that you need to pay down before making new investments, you can consider consolidating it through Credible. Credible makes it easy to streamline your debt repayment at a more affordable rate.
Their online marketplace of vetted lenders provides personalized loan offers based on your needs, allowing you to pay off your debt more efficiently at a fixed rate — without juggling multiple bills.
Paying off high-interest debt as quickly as possible frees up cash flow and reduces the amount of money lost to interest payments over time.
For those with good credit, taking out debt strategically can accelerate wealth building. You can use lower-interest loans to invest in real estate, start a business, or fund income-generating ventures — but always weigh your risk tolerance and ensure the returns beat the cost of debt.
Another smart move? Make extra mortgage payments. Even small amounts can slash interest costs, speed up loan payoff, and boost your home equity, giving you more financial freedom.
Invest in real estate without taking on a mortgage
Using ‘good debt’ to your advantage in a smart investment is one way for Americans to secure their financial future. But there are some other creative ways to get into real estate using hard-earned savings, other than leveraging your FICO score.
Cityfunds is a real estate investment platform that allows individuals to directly invest in portfolios of owner-occupied residential properties.
Here’s how it works: Cityfunds secures an interest in a home’s future value in exchange for cash and as its value appreciates, so does the value of your Cityfunds equity investment, alongside the homeowner.
Since they operate in several hot housing markets in cities like Austin, Dallas, Miami, Tampa, Denver, Phoenix, and Nashville, you could potentially be buying equity in a home in your own neighborhood.
For as little as $500, you gain access to a $20 trillion home equity market without the hassle of dealing with high home prices, an expensive mortgage, or the hassles of being a landlord.
If you’re more interested in the long term earning potential of short-term stays, you can get into this market for a mere $100 minimum. Real estate platform Arrived offers you access to shares of SEC-qualified investments in rental homes and vacation rentals, curated and vetted for their appreciation and income potential.
Backed by world class investors like Jeff Bezos, Arrived makes it easy to fit these properties into your investment portfolio regardless of your income level. Their flexible investment amounts and simplified process allows accredited and non-accredited investors to take advantage of this inflation-hedging asset class without any extra work on your part.
Another option is the Arrived Private Credit Fund, which invests in short-term loans for real estate projects such as renovations.
Investors can receive monthly interest payments on these loans, which have historically yielded around 8.1% annually. These funds back projects like renovations or new home construction, with loans secured by residential property.
Despite how easy some of these options make real estate investing look, there is a lot of market research and capital planning happening in the background. You may prefer to go with a professional based on your comfort level, especially if there is a lot of money at stake.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.