Best Savings Account Rates
What is a savings account?
Most of us have a savings account or a checking account. Savings accounts are quite common throughout the country and people usually keep a certain amount of cash in their savings account. Such an account is important from a personal financial planning point of view.
You can save your cash in that account and keep it there till you figure out where to invest that money. If you do not plan to make any investments, then you can simply leave the money in the savings account.
It is money that you do not need right away. In a savings account, that money will earn a certain interest rate.
The advantage of having a savings account as opposed to a checking account is the interest rate, which is normally absent in a checking account. Checking accounts are good for the money that you will use regularly.
Banks often put a limit on the number of monthly withdrawals from a savings account, something not seen with a checking account. There is also a minimum balance requirement that you must maintain in your savings account in order to not get charged a fee.
If you don’t have a savings account, you can easily open at a neighborhood bank. The interest rates offered and other features may, however, vary according to your choice of the bank. There are now even online savings accounts available, which have certain benefits that traditional brick-and-mortar banks do not offer with their savings accounts.
Interest rates on savings accounts
Historically, before the 2008 financial crisis, interest rates offered by banks on savings accounts were around the 4% mark. But after the financial crisis, they fell quite sharply and now savings accounts offer paltry rates of 0.08%.
The economy has been somewhat weak since those crisis days, and the Federal Reserve has drastically reduced its funds rate. If banks can get money from the Fed with a sub-1% interest rate, then why would they try to seek savings account deposits from people at much higher rates? A combination of factors has led to this historically low-interest rate period.
Regardless of the financial and macro situation, savings accounts continue to be offered by banks. People still use savings accounts even if the interest rates are not very attractive. Evidence on this front is the fact that in 2017, Bank of America increased its savings account deposits by $54 billion after offering interest rates of 0.03% to 0.06%.
If you are also planning to open a savings account, there are a few things that you need to know about the features of savings accounts in order to make the right choice. Interest rates are quite important. After all, the best savings rates will assist you in building a bigger balance for the future.
If you are saving up for an emergency fund or for that dream holiday of yours, a higher interest rate will compound your money at a faster rate.
Common features of savings accounts
Interest rate – This is the number one question on every customer’s mind. They want to know what interest rate will be offered by the bank/financial institution for their deposit in the savings account.
The higher this rate, the better the account will be perceived to be. As mentioned above, current interest rates are historically low, in the range of 0.02 to 0.06%. But online savings accounts can give you 20 to 30 times those rates.
FDIC insured – This is probably just as critical a feature as the interest rate. FDIC is a body created by the government to instill confidence among citizens and maintain the safety of banking institutions.
FDIC insured bank accounts mean that FDIC will guarantee the security of your bank deposits up to a limit of $250,000. So, when money from all the accounts in a particular bank which are under a particular name (account holder) is added up, then an amount up to $250,000 will be insured in case there is any problem with the bank or if the bank fails completely.
Any amount beyond $250,000 will not be protected and there is a risk of loss for such additional amounts. So, if you want to be protected under this insurance, add amounts beyond the limit to your spouse’s bank account or an account under a family member’s name.
Look for the FDIC insured option when comparing various bank accounts.
Online or offline – There are two main sources of savings account – a traditional brick-and-mortar bank and an online account. Both options have their pros and cons. One gives higher interest rates while the other gives you better service and, at times, better convenience.
The withdrawal procedures are different for both options. With a traditional bank, withdrawal is almost instant. With online, withdrawals tend to take around 2 to 4 days. The online savings account is linked to a checking account.
Hence, the withdrawn money goes there rather than cash in your hands. Online may not have ATMs, while offline traditional banks have ATMs. There are many other differences. Hence, know your requirements and priorities and choose accordingly. One is not always better than the other.
Minimum balance – This is the minimum amount of deposit that you need to keep in your savings account in order to remain active or in order to not get charged a low balance fee. Most banks and institutions have a minimum balance requirement.
If you expect to be low on funds, then you may want to look for a savings account with a low minimum balance requirement or a no minimum requirement.
Minimum balance to earn advertised APY – Minimum balance isn’t just limited to keeping an account active. It is sometimes also linked to the interest rate that you can earn on your savings account deposits. When banks and financial institutions advertise their attractive interest rates, there is usually an asterisk next to it.
The catch is that to earn the interest rate that is advertised, you would have to maintain a minimum of a specified amount in your savings account. Not maintaining that balance could mean your interest rate falling quite significantly.
In order to not be caught by such a nasty surprise, always check the terms and conditions related to the interest rate or annual percentage yield. Different institutions will have different policies regarding this feature.
Digital experience – This may not be very apparent at first, but in today’s times, the online and digital offerings of a bank are very important. A lot of banking is now done online.
Hence, having a user-friendly interface with a wide variety of service operability online is a key feature. Check the bank or financial institution’s website. Read about their online offering.
Fees – There are a bunch of fees that both online and traditional banks charge its customers for various services offered. Some examples include account maintenance fees or monthly service fee, withdrawal fees, account opening fees, funds transfer fees, etc.
One would obviously want an account with the lowest or no fees. Various banks charge some or none of these fees. Along with interest rate and other features, the number of fees charged by an institution is also a significant factor to be considered.
Flexibility in deposit and withdrawal – Whether it is making deposits or withdrawals, carrying out both those transactions must be easy and flexible.
Bank accounts that you are looking at should allow you to deposit/withdraw using electronic transfer, cheques, and if possible, cash. ATMs are rare in online accounts, but such an option is useful. Setting up of direct deposit should be easy as well. FDIC limits the withdrawal transactions from savings accounts to 6 a month.
This limit includes online or recurring transfers. ATMs and in-person transactions do not count. Besides this limit, there shouldn’t be any other limit. The more options there are to withdraw/deposit, the better the utility of that account.
You must also think about what modes of withdrawal and deposit you plan to use and prioritize your choice accordingly.
Customer Service – Having top notch customer service is a necessity given that we are talking about your hard earned money.
Online savings accounts
As opposed to traditional bank savings accounts, an online savings account is an online-only service. It is mainly characterized by higher interest rates and lower fees. One must wonder how they can manage to do that? The answer lies in the way online accounts operate.
A traditional bank has to have a physical location. It has to pay rent for that location. Then there are overheads like having a team of staff to operate that physical branch. All of those expenses cost money. With online, those expenses are not incurred.
The overall cost structure of online institutions is lower than that of its physical counterpart. The online savings account bank can thus pass on most of those cost savings to its customers in the form of lower fees and higher interest rates.
Initially, when online savings accounts first began to surface, the online institutions offered high-interest rates to attract customers that were somewhat skeptical about the authenticity and transparency of companies offering online accounts.
High-interest rates were a way of “sweetening the deal” and convincing people to switch over from physical to online. Now, with the advent of 4G internet and mobile communication technology, it has become easier to operate an online account from a phone than to make a time-consuming trip to a physical bank branch.
In fact, even physical banks are having to offer online services to their customers. The situation has completely reversed since the early days of online accounts and online banking.
Differences between online vs offline
Besides relatively higher interest rates and lower fees, online accounts tend to offer better hours of operation. Since it is online, you can interact with your account 24/7. There is even round-the-clock customer service as your phone call goes to a call center. But, that is now also the case with a regular bank.
In terms of service, nothing can match the face-to-face service that a physical branch can offer you. With a physical branch, you tend to meet the same banker over and over and end up building a relationship with that person.
With online, there is no person and the phone banker who answers your call could be different every time. In terms of deposits and withdrawals, traditional banks offer a lot of flexibility. You can deposit cash or cheque.
You can even do an electronic transfer with a traditional savings account. With an online account, you would have to use electronic transfer or mail a cheque to get started. New mobile technologies now allow scanning of the cheque to deposit money. But there is no cash deposit option with an online account unless it is linked to an ATM where you can go and deposit the cash.
The level of flexibility varies in online vs offline and it will depend on what you are comfortable with.
In case of withdrawals for online accounts, you can either do an electronic transfer to a linked checking account, you can request a physical cheque by mail, or you can use your debit card.
If the online account has an ATM service, then you can use an ATM to withdraw cash. Some types of savings accounts or money market accounts may allow you withdrawal by cheque.
The best savings accounts
Now that you have a good understanding of savings accounts and various options regarding the opening of savings accounts, let us look at some of the best offers currently in the market. These savings accounts are picked by us after studying offers of multiple financial institutions.
Marcus by Goldman Sachs: Goldman Sachs is most well-known for being a famous investment bank. But it also has an FDIC insured online savings account service by the name of Marcus. If you are after online accounts, then this one is a very strong offering.
It gives 2.25% interest rate and charges no monthly fee. Its minimum balance requirement is a mere $1. The bank does not have an ATM service or a mobile app. So, if you want to deposit cheques, then you will have to mail them.
Its customer service is also operational during specific times rather than 24/7. Overall, a decent option if interest rate is the primary metric of choice for you.
Ally: Ally Bank offers an online savings account with a 2% interest rate. It also has a mobile app that you can use to deposit cheques by taking a picture and sending it over to the bank. There is no minimum balance requirement or monthly fees either. 24/7 customer service is also another plus point.
Ally Bank online savings accounts are FDIC insured and you might be able to get a free checking account with the bank as well.
HSBC: A well-known brand in banking, HSBC offers a high-interest rate online savings account. You can get 2.22% with a $1 minimum balance. Cheque depositing is easy using HSBC’s mobile app. However, phone support is 7 am to midnight every day and HSBC charges a $25 fee if you close a newly opened account within 6 months.
Another interesting fact is that you cannot transfer funds from another HSBC account to your online savings account with the bank. HSBC’s online savings accounts are FDIC insured.
Popular Direct: Offering the highest APY that we found among all the options in our review list, Popular Direct has an online savings account with an interest rate of 2.36%. However, the high rate comes with a cost. There is a $4 monthly fee for balances below $500. 24/7 customer service is a plus and having a mobile app also provides some convenience.
Salem Five Direct: Salem Five Direct is the online service of the tradition brick-and-mortar bank Salem Five. It offers 2.05% APY for its online savings account.
There is a $5 monthly fee (or an inactivity fee) if your balance falls below $250 and if there is no activity for a year. You can even do transactions at the bank’s physical branch but each such transaction will cost you $9.95 in fees. You need a minimum of $100 to open an account.
CIT bank: This bank has 70 branches in California. You can use these branches or use the online service if you are outside California. It has a money market account offering 1.85% APY. There is also another option where you can earn 2.45% if you can make a $100 deposit every month.
If you cannot make the deposits, then you can get a lower 1.17% APY. There is no other monthly fee. CIT offers plenty of options to choose from depending on the commitments that you can make.
Synchrony: Synchrony offers an online savings account but with the added benefit of being able to withdraw funds over the phone. There is no account minimum, and you get ATM access as well.
Synchrony will also reimburse $5 against any domestic out-of-network ATM fees charged. The interest rate on this account is 2.2% APY. No monthly fee is charged either. This is a decent all-round option for an online savings account.
Discover: Discover is very well-known for its credit cards. It also has an online savings account option. This online account comes with 2.1% APY. It also offers you a $150 credit for depositing $15,000 or $200 for depositing $25,000.
There is also an offer where Discover waives excessive withdrawal and insufficient fund fees for up to a year. If you like offers and do not mind a decent APY with no monthly fee or minimum balance requirement, then Discover’s online savings account is a reasonable choice.
