According to bankrate.com, the average savings account earns a disappointing 0.06%. But many online savings accounts are paying closer to 1% which is over 10 times the national average. That might not sound like much to get excited about, but it could make a big difference. For instance, moving $100,000 to an account with a 1% rate would yield $1,000 each year, versus only $10 from an account yielding 0.01%.
As financial advisors, our clients often ask us how they can get a higher yield from their cash accounts. Most traditional banks pay very little interest (if any) so we often recommend online savings accounts. They are very similar to traditional savings accounts and are offered by some of the most reputable companies in the world like American Express, GE Capital, Barclays, and Sallie Mae. All four of these banks have online savings accounts with yields around 0.90%, low minimums & no monthly fee. 2 And of course, they’re all FDIC insured (meaning your money is insured if the bank were to fail).
The minimum balance required is usually quite low (typically just $1 to $5), but you can often find even higher yielding savings accounts with higher minimum balance requirements. They generally don’t have ongoing fees and they make it surprisingly simple to make deposits & withdrawals by linking to your checking account electronically. I’ve found bankrate.com to be a great resource to sort through the various savings accounts available.
Opening and maintaining an online savings account is easy but it may not be the way to go for everyone. Some people are more comfortable walking into a brick & mortar bank to work with someone face to face. But, if maximizing the yield on your savings account is your ultimate goal, an online savings account may be the right solution for you.
1 Informa Research Services, Inc. as of 3/18/2014
2 Bankrate.com as of 3/24/2014