OK, I get asked all the time about where to get the best rates for a savings account. First off, check your current bank’s offerings for a money market account, which often pays higher interest than a savings account. Money market accounts pay better rates in exchange for restrictions that should be very easy for you to meet. (You can check here for information about kids savings accounts.)
With the low interest rates out there today, getting a high interest rate isn’t easy. Even the best high interest account won’t pay more than 1%, unless they limit how much money earns the higher rate.
Remember, a higher interest rate won’t mean much for a small amount of savings. The difference in actual dollars between 1% and 1.5% on something like $500 is just $5 per year. That isn’t worth it if it means you end up with even one overdraft charge. Keep a cushion of savings in your local account so you instantly transfer money to your checking account if you need it.
The Online Banks
Next, if you are purely interested in rates, then online banks are the way to go. There is a catch, but it isn’t what you think. The best online banks you will find through a reputable source are backed by real banks with real assets offering better rates in exchange for not having to hire tellers to process your transactions. The catch is that you probably still need a regular local bank of some sort to handle certain things.
The high interest online banks transfer money via ACH from your local bank to your online bank. The process usually takes 3 or 4 business days, so we are not talking about instant access to your cash. However, top online accounts come with ATM cards, so if you just need $40 for gas, no problem, but if you need $800 to cover your mortgage payment, then you’ll need to plan ahead.
If you haven’t shopped for savings rates in a while, you might be in for a little shock. As you may have noticed, the Fed has been slashing interest rates in an effort to prop up the sluggish economy. That means loan rates are down (good news), but so are savings rates (bad news). Right now, you’ll be looking at 1% for the highest yielding accounts and closer to 1/2% for your more standard accounts. As always, you can often get higher rates with high account balances.
Best High Interest Online Banks
The Marcus online account is one of the best online banking accounts. It is a high interest savings account, but with today’s low rates, that “high” interest rate is just 0.50%, but compared to a 0.10%, or even 0.05% that many banks are offering on their savings and money market accounts, it still counts as a higher interest rate.
The best place to find online savings rates is at Bankrate.com. If you aren’t familiar with Bankrate, you probably should be. Overall, it is a pretty honest site without too much flash or smoke. Yes, there are ads, but they tend to be non-intrusive. Skip the articles or whatever on the front page and click to go right to what you are looking for whether it is home equity loans, car loans, or bank rates. Don’t take these rates as the gospel, but they will give you a solid ballpark of what you are going to be looking at when you are ready to move forward.
Choose the minimum balance you are looking at and click next. Be sure to watch the fine print for introductory rates or other tricks. You aren’t some sucker who is going to get all dazzled by a high rate for 3 or 6 months. You are a savvy customer who wants the goods, not the gimmicks. Again, don’t take this chart as set in stone. Use it as a place to start your research.
The Fine Print
Watch out for the fine print. Most commonly you’ll find things like being required to also have a checking account, or being required to have a direct deposit. Another common high-interest rate scam is to only pay the highest interest rate on a small portion of your overall account balance. For example, an account that pays 4% on the first $500, only pays 4% on that $500. The rest of your balance earns a more normal rate. Before you sign up make sure that all the fine print and monthly fees makes sense for you.
Remember, don’t fall for intro rates, and read all the terms and conditions. It might sound like legal mumbo jumbo, but somewhere in there you will clearly understand if you are required to have direct deposit or make 3 ATM withdrawals per month. Whatever account you choose, be sure it fits how you use your money.
Your bank, whether it is online or local, needs to be FDIC insured, or in the case of a credit union NCUA insured.
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