I just recently took out a fairly substantial home equity line of credit to further pursue my goal of purchasing solid properties. This will ultimately help me achieve financial independence over the next few years.
Having a large chunk of cash in the bank affected me in a couple of ways. It’s now much more exciting to peruse the FMLS knowing that I’m poised to make solid offers on properties that fit my criteria. It also made me even more concerned about maximizing the interest rate that I earn until I actually find that perfect rental property (or two).
Different financial institutions specialize in different products. For instance, if you need a mortgage loan – consider your local credit union. Do you want to start investing? May I recommend Vanguard or Fidelity? Neither of those options is typically great for earning copious returns on your savings, though – which is what I was in need of after securing my HELOC. As most of you smart savers know, online bank accounts are typically best when it comes to high-interest-rate savings. So that’s exactly where I turned.
Online Bank Accounts Offer Higher Interest Rates
I specifically decided to open an account with CIT Bank. They are currently offering a 4.20% interest rate on their savings account as of writing this article. Compared to the interest rates that many of the other traditional banks out there are paying- this is an incredible rate! The largest banks in the country pay 0.02% on money that you save with them – in addition to the copious fees they like to tack on.
So, since there’s such a large gap in the interest rate being offered by online banks like CIT and the giant banks that advertise on television, it makes sense to jump ship and open a new account. And for me, that extra cash that I’ve got on hand means I would have lost hundreds of dollars a year in earnings had I not made the switch. Those two factors led me on the search that finally ended in opening up this CIT Savings Connect account.
Online Banks have Great Customer Service
I’m not sure what I hate more – bad customer service or obscene bank fees. Well, the good thing is that I didn’t have to deal with either anymore. I called up CIT Bank in order to see how quickly I could speak with an actual human and was happy that it didn’t take long at all. The account I signed up for also has no monthly maintenance fees which was foundational to my decision.
Online banks typically have great customer service. Since they don’t have to worry about physical bank branches, they can spend more time focusing on remote customer service. Online bank accounts are services by top-notch call centers.
No Stupid Fees with Online Bank Accounts
Most traditional banks make you jump through multiple hoops in order to eliminate the silly little fees that they charge. You might be forced to have a minimum balance of $1500 or a direct deposit of your paycheck in order to avoid a $12-15 a month account maintenance fee. I just heard from a listener who was being charged a $ 25-a-month account maintenance fee with Bank of America. That’s outlandish! So not only are you getting paid far less in interest, many are paying that bank money every month just for the privilege of parking their money there. Not cool.
Our favorite online bank accounts typically have ZERO maintenance fees. And NO account balance minimums.
What is CIT’s monthly account maintenance fee? It doesn’t exist. An additional perk is zero fees on wire transfers if you have an account balance of $25k or more! As someone who is specifically opening this account up with the desire to wire funds for an investment property closing in the near future, that is a welcomed perk.
Your Money is FDIC Insured
It should go without saying, but only do your banking with an institution that is FDIC insured. In light of the recent bank failures, this has become even more important. This means that all of your deposits up to $250,000 are safe in the event of that institution’s failure.
It isn’t very often that I see banks without FDIC protection. But if you are digging around the internet searching for the highest interest payout from an online bank, be cautious and do your due diligence. We recently mentioned a fake bank on the show that was touting guaranteed returns of 7%, far more than what any other bank was offering. It turns out your money was being invested in real estate bonds and that the ‘bank’ wasn’t FDIC insured.
Don’t Ditch Your Traditional Bank Completely
Most people get nervous about opening up a new bank account. While the vast majority of my funds will be with CIT Bank for the foreseeable future, I won’t be closing my longstanding Capital One or Discover accounts. Since the account only takes three minutes to open and because the minimum to open it is only $100 you can ease your way into this new relationship.
Maintain both accounts and see how things go. Seriously, if you have avoided opening up an account with an institution that is paying higher interest rates because you think it’s a giant pain – think again.
The main reason to consider a new online bank
If you are in the same boat that I am in and have lots of cash on hand right now, you should strongly consider opening up online bank accounts. You will want to generate a much higher return than the bank you are currently with.
To put it in perspective, the annual interest you’ll earn on a balance of $25,000 with a bank like CIT will net you over $1,000 more than what you would earn with the likes of Wells Fargo, Bank of America, or Chase. And that’s in addition to the $100+ you’ll be saving from not paying those pesky fees to those banks too!
The bottom line
The best online banks offer great customer service, no-fee account options, and solid interest rates. They dwarf what’s being offered by the biggest banks in the country. And that’s exciting for anyone who cares about seeing their money stash grow. And specifically, if you have a large chunk of liquid cash for any reason (like an emergency fund), a high-interest savings account should be of particular importance to you.
Rates change constantly in the high-competition world of internet banking. Find one that pays consistently high rates and is easy to work with. There are lots of options out there. But I beg you, don’t let your pile of cash sit there gathering dust. Put your money to work for you!
Cheers!
* Updated as of: October 11, 2022
Hi. I’ve been using Barclay for a few years and they offer 2.2%. I’ve been happy with them but I’m now noticing that there are several other options that offer a little higher APY. Do you think it’s worth switching banks? And in in general, is it worth moving money from bank to bank chasing the highest interest rate or should I just choose one and stick with it?
This article badly needs to be updated as CIT has greatly reduced their rates since April. Also, be forewarned that CIT’s app AND WEBSITE are total disasters and 100% of the time fail to work at all. You should not expect much help by calling their customer service number as it regularly says wait times are over 2 hours. I’m not sure how CIT stays in business as it is by far the most poorly run bank I’ve ever had the misfortune to deal with. As a result of the I closed by CIT accounts and moved the money to Axos Bank.
To anyone reading this article it is several months old from April 2020. Interest rates have been dropping across the board for everything since the pandemic. This rate mentioned in the article has dropped below 0.95. My personal savings has dropped from 1.4, to 0.7, and now to 0.4. The best current rates from need wallet are no better than 1.0%
I am about to close my CIT account from 2.15% to 1.45% is a huge loss for me.
Great Article! Discover also has a pretty competitive rate 1.01% as of 7/13/20
https://www.discover.com/online-banking/savings-account/
I had a Mutual of Omaha account for a couple years that was just fine for me. CIT took over, and everything went to hell. Within a few days they denied a loan deposit, which resulted in overdrafts, and then when I was trying to make a deposit to cover my impending rent check, they kept my ATM card!
They also denied a transaction I was trying to make simply because the company is based in Canada. For Christ’s sake, everybody shops online now, and most stuff comes from another country!
They seem to want to control people’s accounts and activity much more than a bank should under the guise of fraud control.
I don’t need their fraud control. I certainly don’t need the headaches that their actions have caused.
They lost a customer.
LOL well that rate is gone way way down it’s about .50% now
Sadly, the real return is negative. With inflation you are paying the bank. Negative interest rates are here.
Thank the government and the Fed.
True. Putting tons of cash in a savings account won’t make you rich in today’s interest rate environment. But even still, having access to liquid cash is crucial even when interest rates are insufferably low.
This is not for the average American/ banking customers. People don’t have large amounts of cash sitting around. Most likely we ate trying to save the extra $10-$25 a month in fees. On top of that I recording error in your checkbook and you just got charge another $35+ for INS fees. Many people like me are usually playing the funds clearing game that the bank always wins because as they explain they apply all debits before credits regardless. That’s what online banking can do for me. I float thousands of dollars through monthly and still that $34.00 charge burns me. I see people like me being the other people saving tons of money online as well PS. The article should have headlined for Large Account Balances. I disliked reading the entire article rwhen it really didn’t apply to me
Hey Larry, we’ve found that the online banks make more sense for individuals- regardless of how much money they have in the bank.
But it is true that one of the ways that you can earn the higher interest rate with CIT is by maintaining a balance of $25k or more. However, there’s another way- the other option is to just deposit $100 and then have a monthly deposit of at least $100. That also qualifies you for the highest rate!
Hey Larry, I think that online banks like CIT, Discover, & Ally are built for basically everyone. And some, like Ally, have done away with those overdraft fees that you mentioned. That’s a great trend – especially for those with smaller account balances.
From what I’ve seen it is the big national banks that are taking advantage of their customers by charging monthly fees just to have an account with them. They pay virtually nothing on any money you have in savings with them either.
I’m sorry you felt like the article wasn’t helpful. But I hope you’ll think about the major disadvantages of doing business with one of the biggest banks before you decide not to open an account with one of the better online banks.
CIT refused to open my account twice even though I have plenty to deposit. When I asked, they said it was a variety of unspecific factors and only left me a mailing address to complain.
That sounds like a crappy experience, Michael. I’m so sorry they treated you poorly!