How much are you making on the money that’s sitting in your savings account?
Chances are not very much.
Interest rates for savers have been getting demolished in recent years – and even more so in the last few months. Whether you are with one of our favorite online banks or if you do business with a local community bank or credit union, rates have been plummeting.
This can be frustrating! Especially if you have been intentional about building up your savings. Seeing abysmally low returns can turn your savings habit into a bit of a downer.
The national savings average is 0.05%. And if you are with one of the biggest banks in the country you might even be earning less than that pittance!
So how do you know whether or not you should change banks in order to score a higher interest rate? And is there anywhere you can even go right now that will give you a meaningful bump in earnings?
It doesn’t always make sense to prioritize a higher interest rate
Getting paid more on your savings is almost always smart. But there are some times that it can be more trouble than it’s worth. So do the math!
If you’ve got $5,000 in savings, you’ll only earn $2.50 in interest this year on it – at least at that .05% average interest rate. And with some of the best rates from online banks hovering around 0.5%, changing banks with net you an extra $22.50 a year.
Yep, that’s it. Is it worth the time and energy that it takes to change banks for just $22?
Basically, if you haven’t amassed a healthy emergency fund and the balance of your savings account isn’t significant, moving your money to a bank that pays you a higher interest rate will have a minimal financial impact.
But it’s not all about the interest rate…
When should you change banks to get a higher interest rate?
If you don’t have much money in your savings account, making the switch to a bank account that will pay you a higher rate of interest won’t move the needle all that much. But if you’ve been kicking butt with your savings, making sure you get a reasonable return on those funds is mega important. If you’ve been able to create a solid stash of savings, you should definitely be with a bank that offers top tier rates.
Also, it’s important to pay attention to the monthly bank fees you might be paying for an account as well. The biggest upside in switching banks might not be getting a tiny bump in your interest rate, it might be doing business with a bank that doesn’t charge you fees – including ridiculous monthly fees.
The average monthly fee for a savings account is $4. But many of the big banks charge $10-12 or more every month. Just for the privilege (*eye roll) of having an account with them. That’s in addition to other absurd fees that you’ll often find like ATM and overdraft fees.
Doing business with a bank that pays a solid interest rate is important. Doing business with a bank that eliminates fees is even more important.
Where can I go to get paid a meaningful amount on my savings?
This is the question so many people are asking these days. Some of our favorite online banks consistently offer top tier returns on savings accounts. A few of our favorite banks that eliminate most fees and offer decent returns on your savings are Discover, CIT, and Ally. There are lots of other cool online banks out there too with those same priorities.
But if you want to earn even more than what the biggest online banks have to offer, there are a couple of places you can turn in order to make even more.
In order to score that top tier return, look specifically to banks that offer rich sign-up bonuses. Doctor of Credit has a great list of banks that offer a sweet monetary bonus just for opening an account.
I’ve taken advantage of a few of these in the last couple of years. I’ll often close the account after I meet the eligibility requirements for the bonus, but one of the banks that offered me $250 to join has become my primary bank at this point – thanks Discover!
It is important to read the fine print in order to figure out what hoops you need to jump through in order to get the bonus. Many require a minimum balance for a specific time period – often 90 days. Others require that you change your direct deposit to that bank.
There are also banks that offer higher rates of return if you are willing to jump through additional hoops. Interestingly, the cell phone company T-Mobile offers a 4% return for its customers on balances of up to $3,000. That’s about the highest rate in the country!
Doctor of Credit also has a great list of the best nationwide offers and they do a great job of detailing what you need to do in order to get the promised return. Instead of getting an average return of 0.05%, you can get an interest rate between 2-4% instead. Now that might make the hassle worth it.
Be careful when searching for higher returns on your savings
I just mentioned an awesome resource for finding FDIC insured accounts that offer significantly higher than average returns. If you are willing to jump through some extra hoops, go get that inflated interest rate!
But beware, there are many online offerings that trick people into thinking that they can outearn the average by an audacious amount. These fintech companies promise returns between 5-9%. That sounds nice, right!? But that sky-high rate doesn’t come without some nasty tradeoffs.
It turns out that most of these institutions are paying a higher rate because they aren’t offering savings accounts at all. Instead, they are cryptocurrency accounts that offer very few, if any, protections on your money. And since cryptocurrency is highly volatile, your savings are not well protected in these accounts.
Instead of calling their products a savings account, they might instead be labeled a “savings experience.” But these “experiences” put your money at real risk. If it sounds too good to be true, it probably is.
So make sure that the bank you are looking to open an account with is an institution that is FDIC insured. You can check to see if your current bank or the one you are considering offers legit FDIC insurance via this tool.
So should you switch banks in order to get a higher return on your savings?
Chances are, you should probably change banks in order to score a higher interest rate. But you should also prioritize doing business with a bank that eliminates fees and values its customers.
So avoid bank-hopping in order to score incremental interest rate gains. That is just a waste of time. Instead, make sure that the bank where you keep your savings is working hard for you on all levels.