By Sarah Skidmore Sell
AP Personal Finance Writer
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.
Here are a few things for consumers to consider:
Shop around
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.
Look closely
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.
You may want to take a look at online reviews to see what other customers say. And always make sure your account is FDIC insured, which means there is federal backing that your money will be there - up to a certain level - if there were a bank failure.
Consider options
You can make money on a variety of accounts these days, consider what best suits your needs.
A traditional savings account is a great fit for money that you need access to but don't plan to tap often. The money is liquid and can be easily transferred into other accounts. But beware, Federal Reserve rules limit these accounts to no more than six withdrawals or transfers a month.
A money market account traditionally pays a higher rate than a savings account. The average national rate for a money market account is 0.15 for deposits under $100,000 and 0.24 for those over, compare that to 0.09 for a savings account. These accounts vary, though, because they typically offer some check-writing and ATM access. But money market accounts usually require a higher balance in exchange for those benefits and face the same withdrawal rules as a savings account.
CDs, or certificates of deposits, also offer higher rates than a savings account - the national average is as high as 1.18 percent - but these lock up your money for a specific amount of time. When you open a CD, you essentially agree not to withdraw the money until its maturity date. If you do before that time you face an early withdrawal penalty that may wipe out anything you earned. That makes these a good choice if you have a long-term savings goal and you are confident you won't need the cash in the meantime.
You may even want to consider an interest-bearing checking account if you don't want to limit access to your money but still want to earn a little on it. The rate may not be as high as other options though: The national average is 0.06 percent, according to the FDIC. But again, competition has bred some innovation.
Simple, an online bank that only offers checking accounts, came up with a unique option. It is offering customers a 2.02 percent APY if they have a daily balance at $2,000 or above. However, the rate is variable and if you dip below $2,000, you don't earn that same high rate.
"We don't expect people to leave their bank accounts for us, but if you have money you want to leave (untouched) then leave it with us and move it back when you need it," said Dickson Chu, executive chairman at Simple.
Published: Wed, Nov 07, 2018
