Savers: Shop around, and you may finally make some money
Savers rejoice – you can finally earn a little more on the money you’ve been setting aside.
To draw in customers, banks – particularly online institutions – have been getting more competitive with the rates they are offering on savings, CDs and even checking accounts. That means a savvy consumer may be able to earn far beyond the norm if they are willing to shop around.
Take the humble savings account: The average interest rate in the U.S. is 0.09 percent, according to the FDIC. And that is just an average – some banks are offering rates as low as 0.01 percent while many others are at or above 2 percent.
To someone with $5,000 sitting in an account, that means the difference between earning 50 cents a year in interest versus $100.
In the low-interest rate environment that followed the Great Recession, banks routinely paid little to nothing on many personal accounts. The Federal Reserve began to raise its rates in 2015 but traditional banks were slow to do the same for customers.
They had little incentive – customers had grown complacent after years of low interest rates. And traditional banks were large enough that they had huge deposits and other business lines that served them well.
A number of online banks spotted an opportunity and began offering much higher rates to attract more customers. They could afford to because they didn’t have the cost of maintaining a storefront on every corner.
But also, not having the benefit of size, they needed to offer more attractive rates to survive. Some bigger banks took notice and, wanting to better serve a more online-focused customer base, began to respond with higher rates themselves.
While interest rates are still low historically speaking, they are on the upswing. Experts say more banks are getting into the rate race and consumers should take note.
So while lesser-known players, like Bank5 Connect, offer a 2.05 percent annual percentage yield, or APY, on a savings account, bigger banks have some nice offerings as well. Marcus, the online bank of Goldman Sachs, has a 2.05 percent rate on its savings account and HSBC Direct offers a 2.01 percent rate.
“The outlook for savers is very positive and the opportunity cost of not moving your money is only going to grow,” said Greg McBride, chief financial analyst at Bankrate.com. That’s because money earning little to no interest is losing its purchasing power over time if the rate earned on it does not keep pace with inflation.
Complacency isn’t going to earn you anything and experts say many consumers are missing out simply because it takes effort.
“One of the biggest mistakes we make is getting into a product that is not right for us,” said Paul Golden, spokesman for the National Endowment on Financial Education. “I think consumers should shop around.”
It won’t take long: Take a look at your existing accounts and find out what you are getting paid. Then do a quick search online to get a sense of comparable rates (many websites compile and sort the data for you).
Online banks are leading the way on rates. Community banks and credit unions may offer competitive rates as well. And many big banks are rolling out options with highly competitive rates.
“Better is out there and it’s not hard to find,” said Diane Morais, president of consumer and commercial banking products at Ally Bank, which offers a
1.9 percent APY on its savings account. The bank estimates that there is as much as $3 trillion parked in bank accounts earnings 0.25 percent or less.
Want to stick with your traditional big bank? Even switching to a different type of product may earn you more. Or if you’re an established customer of a bank, try to negotiate a better rate.
It also pays to look at all the features of the account to make sure things are as good as they seem.
Can you access the money easily? How easy is it to transfer among accounts? Is there a balance requirement? What kind of fees might you face? Will the rate change over time? And are there any other restrictions that might limit how you earn or access the funds.
Golden also suggests making sure there have not been any security or data breach at that institution recently.