If you work hard to set aside money but are frustrated that your traditional bank savings account earns just a tiny fraction of a percent in interest, now is a great time to learn about options that could let your money work harder for you. There’s no reason not to earn money on your emergency fund or other cash you’ve got set aside.
Rates are rising… so where’s the money?
It’s been a little over 3 years since the Federal Reserve began slowly raising its benchmark interest rate from 0% in the wake of the global financial crisis. Those higher rates have trickled through the economy and shown up in more interest charged by lenders on revolving credit card debt, car loans, and mortgages.
But if you’re like most Americans, you probably haven’t seen higher rates show up in the interest you earn on your savings.
Fortunately, by putting in a little bit of work up front, you could potentially earn more on your savings each year.
Sticking with your bank might hurt you in the wallet
The largest national banks have some obvious appeal. Besides having access to bank branches and ATM’s spread out around the country, it’s also nice to be able to make immediate transfers between accounts and same-day payments on loans without having to worry about mailed checks arriving on time. Many large banks even allow you to make immediate transfers to family and friends without having to sign up for third-party applications like PayPal®.
That convenience has real benefits, but it comes at a cost. Once you’ve moved all your business to a single bank, your relationship becomes what they euphemistically call “sticky.” We consumers are famous for inertia. It’s easier to stay put than make a change. A Bankrate survey found that people keep their checking accounts for an average of 16 years, even when they pay high fees and comparable accounts are available elsewhere for a lower cost. We are similarly lazy when it comes to other financial products. Refinancing your mortgage with another lender may seem like more trouble than it’s worth if it means having to set up your bill payments all over again.
Ultimately, that means while big banks are quick to raise the interest rates they charge on your loans, it may feel they’re a lot slower to raise the interest rates they pay you on your savings.
The four largest banks in the US offer an average interest rate of 0.0325% on their standard savings accounts. That’s $3.25 in annual interest for every $10,000 you save. It’s not zero, but it’s pretty close. According to Bankrate, the national average interest rate on savings accounts in March 2019 is just 0.10%.
Depending on your needs, here are some higher-interest alternatives you can use to get unstuck.
High-interest online savings accounts
A number of banks have launched online-only savings account options with much higher interest rates than those offered by brick-and-mortar branches.
While these accounts are great for folks with high savings balances, since the banks usually don’t impose a maximum balance for earning their highest interest rates, remember that FDIC insurance only covers account balances up to $250,000 per bank, per account holder. If you plan to hold more than that in high-interest savings accounts, consider spreading the balance across enough different banks to ensure you don’t exceed the insured limit at any one bank. For a fee, services like MaxMyInterest.com will rebalance your savings across banks to maximize the interest you earn and insurance protection you receive. Some brokerages also offer to suggest ways to shift savings between institutions and maximize your FDIC insurance. Fees and benefits vary.
Besides the insured balance limit, high-interest savings accounts have some additional limits and restrictions to be aware of. Savings accounts allow just 6 fee-free withdrawals per statement period, and most don’t offer ATM or debit cards allowing easy access to the funds in your account. That means it can take as long as 3-5 days to complete a transfer to or from your primary checking account.
| Banks | Annual Percentage Yield |
|---|---|
| Marcus | 2.25% |
| Barclay’s | 2.20% |
| Ally | 2.20% |
| American Express | 2.10% |
Rates listed are current as of March 25, 2019. Please check with each bank for the most current rates.
Rewards checking accounts
Folks with lower savings balances, and who are willing to jump through a few hoops, might consider the rewards checking accounts offered by many smaller banks and credit unions. These accounts offer higher, and in some cases much higher, interest rates on checking account balances, as long as you’re able to meet certain direct deposit or debit card transaction requirements each month.
They also provide easier access to your money, with no transaction limits like those on high-interest savings accounts, and may reimburse some or all ATM fees incurred at out-of-network ATM’s. Unlike high-interest savings accounts, rewards checking accounts impose a maximum balance eligible to earn the highest rewards Annual Percentage Yield (APY), and if you’re unable to meet the direct deposit or debit card requirements in a particular month, your balance will earn a much lower interest rate. However, they can be a smart choice for folks willing to put in a bit of effort to earn more interest.
| Bank name | Orion Federal Credit Union | One American Bank | Heritage Bank | Consumers Credit Union |
| APY when requirements are met | 4% | 3.50% | 3.33% | 3.09% |
| Direct deposit requirements | $500 per month | N/A | 1 per month, any amount | $500 per month |
| Debit card requirements | 8 | 12 (at least $5 each) | 10 | 12 |
| Maximum balance earning highest APY | $30,000 | $10,000 | $25,000 | $10,000 |
| ATM Fee Refunds | Unlimited (up to $10 each) | N/A | Up to $25 per month | Unlimited |
Rates and requirements listed above are current as of March 25, 2019. Please check with each bank for the most current rates and requirements.
Money market accounts
Money market accounts are a kind of super-charged savings account. Like savings accounts, they offer higher interest rates and only allow 6 fee-free transfers or withdrawals per month. They may also offer debit cards and the ability to write checks. If you want to earn more interest than a standard savings account without meeting the transaction requirements of a rewards checking account, money market accounts are worth considering.
| Bank Name | AllAmericaBank | MemoryBank | |||
| APY | 2.50% | 2.45% | |||
| Minimum required to open online | $500 | $50 | |||
| Maximum balance earning APY | $50,000 | $1,000,000 | |||
| Debit card | Yes | No | |||
| Check writing | Yes | No |
Rates and requirements listed above are current as of March 25, 2019. Please check with each bank for the most current rates and requirements.
Bond funds
Another option to potentially take advantage of higher interest rates is to invest directly into a bond fund which is a mutual fund that only invest in bonds. Unlike the other options discussed above, mutual funds are not insured and are not guaranteed to retain their value. Please keep in mind this is an investment, not a saving account and all investments are subject to risk.
With a Bond Fund Interest payments are typically made monthly, based upon the different bonds in the fund, which means that the interest payments will vary each month. An investor who invests in a bond fund is putting his money into a pool managed by a portfolio manager. Bond Funds are sensitive to economic and business conditions, causing the value to fluctuate, up or down accordingly. If you’re interested in knowing more you should discuss this with your financial advisor.
Get unstuck and let your money work for you
The good news is that it’s possible to earn higher interest on your savings by paying closer attention to the many products available. Still, it’s going to take some work on your part because there’s no one-size-fits-all solution.
If you are just looking to earn a bit more interest on your paycheck, a rewards checking account might be all you need. If you’re also building up an emergency fund, you might consider adding a high-interest savings or money market account. And if you’re saving up for a big medium-term expense like the down payment on a house, a wedding, or replacing a car in a few years, then consider speaking to a financial professional to explore your options.
Diligence could pay off in the long run. The banks offering the best rates and most generous terms are constantly shifting. Fortunately, you can hop online any day to quickly get lay of the banking land and find the currently highest-paying accounts. Some websites, like DepositAccounts.com, will even notify you of changes to the rates offered by banks you want to follow, and let you know when the accounts you already have fall to the middle or the back of the pack, or you can do this yourself manually on Bankrate.
Gideon Sandford is an investment adviser representative, author and travel hacker with a passion for making money from money. He blogs about travel rewards programs at Freequentflyerbook.com. Opinions are his own
Haven Life Insurance Agency (Haven Life) does not provide tax, legal or investment advice. This material has been prepared for educational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or investment advice. You should consult your own tax, legal, and investment advisors before engaging in any transaction.
Haven Life does not endorse the companies or offer the products, services and/or strategies discussed here.
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