Time to shop for better savings return
Yields on deposits rising at online banks, but big institutions have been slow to budge
The Federal Reserve’s five interest rate increases since December 2015 are finally trickling down to savers, at least those willing to shop around.
For the first time in seven years, the highestyielding one-year certificate of deposit listed on Bankrate.com topped 2 percent in December. On Friday, the website listed six banks or credit unions offering 2 percent or better on a one-year CD with a minimum investment of $5,000 or less. An additional 31 were offering 1.5 to 2 percent.
The website DepositAccounts.com listed more than 60 banks or credit unions offering at least 1.5 percent on oneyear CDs, including nine paying more than 2 percent. It has a wider range of credit unions than Bankrate.
The average financial institution, banking on customer inertia, has been much slower to respond. The national average on a one-year CD is only 0.45 percent, according to Bankrate, and the biggest banks are still paying almost zero.
Wells Fargo and Bank of America are offering 0.05 percent on a stan-
dard one-year CD. Chase is offering 0.02 to 0.05 percent.
“The banks that have the most deposits, the greatest market share, don’t need to compete on price to bring in more deposits,” said Greg McBride, chief financial analyst with Bankrate. “Smaller banks that do not have branches and ATMs on every corner and their name on the stadium, the way they do compete is through price.”
The big banks say they provide convenience and services that you can’t usually find at the highest-yielding institutions.
Wells Fargo offers “great value for our full array of financial services,” Wells spokesman Jim Seitz said in an email. It’s also offering “several promotional rates” for Bay Area customers, including a nine-month CD at 0.3 percent, and a 13-month CD, which requires $25,000 in “new funding,” at 0.55 percent.
Most of the top-yielding institutions listed on Bankrate and DepositAccounts are online-only banks or smaller brick-and-mortar banks and credit unions. Some don’t offer individual retirement accounts or trust accounts.
However, many brokerage firms let customers buy high-yielding bank CDs in an IRA, trust or regular account. The yields on these “brokered CDs” can rival the top-yielding online banks. In some cases, brick-and-mortar banks offer higher yields on the CDs they sell through brokers than they offer to their retail customers, said Ken Tumin, founding editor of DepositAccounts.
With the Fed expected to raise rates at least three times this year, you might be reluctant to commit to a one-year CD. In that case you can find dozens of online banks paying 1 to 1.7 percent on savings or money market deposit accounts. Some credit unions offer higher rates, up to 3 percent, but
on a limited amount of funds such as $1,000 to $5,000.
High-yield savings “is a bit of an arms race, with the top-yielding banks trying to outdo each other,” McBride said.
With a savings account, you can make unlimited deposits but only six withdrawals or outgoing transfers each month. It’s easy to link an online savings account to your checking account and move money back and forth. “It does not require you to sever your existing banking relationship,” McBride said.
There is no guarantee that high-yielding savings will stay that way, so “don’t fall asleep. In a rising-rate environment, you want to be able to actively shop around,”
McBride said.
Make sure your bank or credit union account is insured by the Federal Deposit Insurance Corp. or National Credit Union Administration, respectively, and that you stay under their insurance limits. In general, accounts are insured up to $250,000 per depositor, per bank or credit union, per ownership category. Taxable accounts and IRAs are considered separate ownership categories.
DepositAccounts did a study and found that since the beginning of 2017, the average yield on brick-and-mortar bank savings accounts has risen to 0.17 percent from 0.15 percent.
The average credit union savings account yield went to 0.18 from 0.17 percent.
Meanwhile, the average yield on online-bank savings accounts went to 0.96 percent from 0.67 percent.
Internet banks are quicker to raise rates because their customers “tend to be more rate sensitive,” Tumin said. The Internet banks “make it easy to transfer your money. You usually link your account to your brick-and-mortar account and initiate an electronic transfer. That also makes it very easy for customers to move their money to another Internet bank."
There’s “a lot more inertia” at brick-andmortar banks, where customers have held their accounts for years, he said.
For the record, I asked the big banks why they have been so slow to raise their retail deposit rates.
“Because we have been in an historically low interest-rate environment for several years, we’re going to be disciplined in raising deposit rates until Fed rates become more normalized,” Chase spokesman Suzanne Alexander said in an email.
Bank of America spokeswoman Betty Ries said in an email, “We’re always monitoring consumer behavior, deposit balances and the competitive landscape, and take these factors into account in our pricing. The value we provide goes far beyond rate.”