According to bankrate.com, the national average savings account interest rate is still only 0.5% as of September 2023.
However, Federal Reserve interest rate increases have nudged saving account interest rates quite a bit higher compared to where they were this time last year, particularly at some of the most well-known online banks.
If you'd like to discuss this individually, here's a link to our page where you can request a personal consultation: Selecting a Competitive Savings Account
Big Branch-Network Banks
Some of the largest, most well-known national banks with branch networks throughout the country still pay interest rates on savings account of 0.01% or less.
Because these banks often have long-standing, deep client relationships involving multiple products such as checking accounts, credit cards, and mortgages, their deposit base tends to be very sticky.
People often use these banks due to the brand and the location, not necessarily due to competitive interest rates.
As a result, these banks have historically paid much lower interest rates compared to online competitors whose value proposition is focused primarily on the interest rate itself.
In summary, big branch network banks know they can get away with paying less interest, so they do. The less interest they pay, the more money they make.
High Interest Online Savings Accounts
The list below includes some of the highest interest online savings accounts with no minimums, no fees, and FDIC-insurance up to $250,000 per account registration.
Capital One - 4.3% on fully-liquid, FDIC-insured savings account as of 09/05/2023
Here's a link to the site: https://www.capitalone.com/bank/savings-accounts/online-performance-savings-account/
Marcus - 4.3% on fully-liquid, FDIC-insured savings account as of 09/05/2023
Here's a link to the site: https://www.marcus.com/us/en/savings/high-yield-savings
Ally Bank - 4.25% on fully-liquid, FDIC-insured savings account as of 09/05/2023
Here's a link to the site: https://www.ally.com/bank/online-savings-account/
Citizens Access - 4.5% on fully-liquid, FDIC-insured savings account as of 09/05/2023
Here's a link to the site: https://www.secure.citizensaccess.com/Citizens/home
The primary way these online banks attract new customers is by offering higher-interest savings account options compared to big branch-network peers.
Because higher interest rates are the majority of their value proposition, these online banks are generally much quicker to raise interest rates than big branch-network banks.
Looking ahead, they may maintain higher interest rates for longer compared to big branch network banks if/when the Fed decides to start cutting rates again.
The Numbers
At 4.3%, $10,000 in a savings account would earn $430 for the year
Over a 30-year period, the interest earned would be about $12,900 (omitting compounding).
At 0.01%, $10,000 in a savings account would earn $1 for the year!
Over a 30-year period, the interest earned would be about $30!
If rates continue going up, the gap between competitive savings account interest rates vs. big branch-network bank may only continue to widen from here.
Over a long-time period, the difference in interest paid by savings accounts paying competitive interest vs. big branch-network banks can add up to be meaningful.
The Gameplan
The primary point of this article is to encourage the following steps:
1 - Check your savings account statement to see if your savings account is still paying 0.01% or close. (checking accounts for day-to-day use may be expected to pay little or no interest, but savings accounts kept aside as an "emergency fund" that aren't needed for day-to-day expenses should earn higher interest).
2 - If your savings account is paying 0.01% or close, consider shopping around for better FDIC-insured, no minimum, no fee options. Some useful links are included above.
Doing the two steps above once, which may take as little as 15 minutes, can potentially result in a meaningful amount of additional interest earned over a lifetime while also maintaining full liquid access to the funds and FDIC-insurance.
Shopping around to make sure you're being paid fairly by your savings account can really pay off.
If you'd like to discuss this individually, here's a link to our page where you can request a personal consultation: Selecting a Competitive Savings Account
This is article is for informational purposes only and should not be considered as tax or legal advice. Advice is only provided after entering into an Advisory Agreement with the Advisor. See other disclosure here: Disclosures