Savers, It’s Time to Choose an Online Bank

You should reconsider the bank you use, at least for some of your savings. Chances are, if you’re a customer at one of the major retail banks, you’re leaving real money on the table.

High-yield online savings accounts are finally starting to feel like they are in fact, high-yielding — or at least higher-yielding than they’ve been in recent years.

After keeping their rates depressingly low during the pandemic and for the first half of this year, firms like Synchrony and Goldman Sachs Group Inc.’s consumer bank Marcus have started to offer more. For example, Marcus recently bumped its payout for a savings account to 1.9%, or 2.9% (for three months) for customers who refer a friend.

Across the board, the average online savings account yield had the biggest monthly gain in at least five years between August and September, according to Ken Tumin, founder of DepositAccounts.com. As the Fed prepares to hike rates again this week, Tumin says he expects many high-yield savings accounts, many of which are currently paying more than 2%, to climb above 3%.

But don’t think that means the biggest traditional banks will follow suit. Since interest rates for savings accounts aren’t really regulated, there’s a wide variety and it ultimately comes down to how badly a bank wants your money. Right now the average for all banks, many of which are brick and mortar, is 0.13%.

The household names have record levels of deposits following consumers receiving stimulus payments and spending less during the pandemic. While there were some outflows last quarter, deposits are still well above pre-pandemic levels and the big banks don’t really need to attract new customers. JPMorgan Chase & Co.’s Jamie Dimon said as much last year — no surprise, Chase’s savings account rate is currently 0.01%.

Which means, if you haven’t shifted some money over to an online savings account, what are you waiting for?

I know we aren’t talking about big money. But it will add up over time. Let’s say you have $25,000 in an online high-yield savings account; at a 3% rate, you’ll earn more than $760 in a year. Keep that account for a decade without putting any additional money in and it’ll grow by more than $8,700 to $33,746.

Unfortunately, consumers tend to be pretty attached to their current banks. A January survey by Bankrate shows that the average US consumer has held onto the same savings account for almost 17 years. Even among younger people, or those in their late 20s and early 30s, savings accounts are typically held for more than seven years.

In addition to the higher payout, it can be helpful to keep money in an online savings account, separate from your go-to, daily checking account, because it creates a barrier. You can set up an online savings account as a spot for emergency savings, a down payment or a vacation, to earn more — and be less tempted to tap it.

Just be sure to review the terms and make sure you understand what’s required in terms of minimum balances to avoid maintenance fees, or if there’s a cap on how much interest you can earn over the course of the year. Often the online banks that are offering the tip-top rates will do so in exchange for you forking over a set amount of money or maintaining a certain balance. Take UFB Direct — you’ll earn up to 2.6%, but get hit with a $10 monthly fee if your balance is less than $5,000.Also, be wary of fintech firms that tempt you with 4%-plus yields, but aren’t necessarily banks. You should only give your money to an institution that’s backed by the Federal Deposit Insurance Corp., which means if it goes bust, you’ll be covered for up to $250,000.

Finally, if you’re looking for something higher-yielding at an online bank, rates on certificates of deposit, where you lock money up for a set period of time, have jumped as well. The rub with those though is that the rate is fixed — you’ll be locked in for the duration of the CD — and if online savings account rates continue to climb, you could miss out.

When it comes to savings accounts, it doesn’t have to be all or nothing. At the very least, keep your old bank, but add an online savings account. The few minutes it takes to fill out some personal information will be well worth $8,700.