Let’s not mince words. If you have a standard savings account with a traditional brick-and-mortar bank, there’s a good chance you’re getting ripped off. Why settle for a minuscule interest rate when you can score up to and maybe even more than twenty times the national average? Banks that do business exclusively or almost exclusively online tend to pay higher interest rates.
In many cases, it only makes sense to switch. Read on for the lowdown on online savings accounts so you can start to make more on your hard-earned cash.
The Numbers
As of 2019, the national average interest rate for a savings account is just 0.06%.
There are two important things to note about that tiny number: First, some banks, particularly big-name banks, offer much lower rates, often as low as 0.01%. Second, the higher rates many online banks offer contribute to the national average being as high as it is. In some ways, they artificially inflate it.
A review of accounts available online, as of August 2019, reveals that the national average interest rate for online savings accounts is roughly 2.0%. The highest interest rates among online savings accounts tend to be between 2.0% and 2.5% with many falling in the neighborhood of 2.35%.
In plain math, $10,000 sitting in a savings account that earns the all-too-common 0.01% interest rate yields just a few cents in annual earnings. That same $10,000 in an online savings account with a 2.30% interest rate generates roughly $230 over the course of a year.
When you see the numbers, it’s almost a no-brainer to go with a higher-paying online savings account.
Researching Online Savings Accounts
Online savings accounts have come a long way over the years. You’ll have to do some research to suit your needs and unique financial situation. However, here are some general points to consider as you begin searching online for a high-interest savings account.
The type of service you receive varies considerably by the bank. But, generally speaking, you’ll find account minimums ranging from $0 to $2,000. In some cases, to get the best interest rate you’ll need to maintain a particular minimum balance. It’s common to find tiered interest rate structures. The more money you keep in your savings account, the higher the interest rate you receive.
Some online banks tout no fees, no matter what. Others provide a fee-free experience if you maintain a certain balance, use two or more of their products and services or make a qualifying number of transactions every month (e.g., direct deposits or transfers).
Almost all offer access to your money via a traditional ATM or debit card. Some go as far as waiving all ATM fees. Others will waive fees if you meet certain specifications. Some no-frills online banks do not offer ATM cards. Consider this if you think you’ll need quick access to your money. Without an ATM card, you’ll likely need to make online transfers into another account or request a check.
Of course, online banks provide online access to your account information so you can check your balances and manage your money from just about anywhere. Almost all have mobile applications with varying levels of functionality, including the ability to remotely deposit checks.
You’ll want to research each bank’s offers and fee structure. It might also be a good idea to read reviews of an online bank’s mobile application. If you’re not going to have a brick-and-mortar location to visit -- in exchange for more attractive interest rates -- you’ll want to make sure the online experience is as good as it gets.
Resources:
1.https://www.valuepenguin.com/banking/average-bank-interest-rates
