Is a Better Savings Rate Worth Changing Banks?
When your savings account pays next to nothing in interest, it's smart to explore alternatives. Changing banks for a higher fee can help you increase your cash more quickly, but be sure to move ahead before bothering to change banks. '
Why do people look for better savings rates?
Your bank or credit union is a safe place to keep your money idle, and interest earnings keep your money growing. Banks lend their savings to other customers, allowing them to earn income from their money. In return, they pay a portion of what they charge, which encourages you to keep your deposited money.
The Annual Percentage Yield (APY) tells you how much you earn from your savings, expressed as an annual return. This number can help you compare banks and the higher the APY the better (all things being equal).
The average APY at banks nationwide is 0.05%, but you can certainly earn more than that. Some of the best savings accounts pay an APY of 0.70% or more. Alternatively, if you open a certificate of deposit (CD) for at least one year, you can earn more than 1% APY with some institutions. To put this in context, suppose you save $ 5,000:
At 0.05% APY, you earn $ 2.50 per year.
At 0.70% APY, you earn $ 35 per year.
That's a big difference and that's why it's important to get a competitive rate on your savings. Online banks tend to have relatively high fees, and some community banks and credit unions also compete for your savings.
To help you find accounts easily, we've created a list of the best savings accounts with weekly rate updates.
Factors to consider before switching accounts
When does it make sense to go for a higher rate on your savings? Several factors can help you decide.
How much do you need to save?
One of the most important considerations is your account balance. If you have substantial savings, the fee is more important. For example, as in the previous example, suppose you can earn 0.65 percentage points more on your savings at a different bank.
If you save $ 5,000, you'll get an additional $ 32.50 per year in return, assuming the rates don't change. But with $ 45,000 in savings, your earnings increase by $ 292.50.
Ultimately, you must decide whether fees are worth applying. At $ 32.50, it may or may not be worth the effort to fill out a form, transfer money, and get acquainted with a new bank. But at $ 292.50, the higher rate becomes more attractive. Some of the other factors below can help finalize your decision.
Minimum deposit requirements
The size of your account balance can also determine which accounts are available to you. For example, Customer Bank in early November paid 0.80% APY on balances of $ 25,000 or more in the Ascent Money Market account.2 You get nothing if your balance falls below that level, so reading the letter is crucial. small and choose banks that are a good fit for your finances.
Banks sometimes advertise exceptionally high fees for collecting new deposits, but the fee is a promotional fee that will be reduced after a limited time. In these cases, you will at least receive advance notice that the teaser fee will not last forever.
Please review the footnotes and read all bank disclosures carefully whenever you are considering opening an account.
Probability of rate changes
Banks change their interest rates regularly. Balance keeps track of the banks and credit unions with the best interest rates, and if you do the same, you'll notice that the top-ranked banks change positions frequently.
If you choose a bank because it has the highest rate, you need to prepare for this reality: You won't have the highest rate for long, and your rate can eventually become downright unimpressive. Are you willing to switch banks if your bank stops competing for deposits?
Balance limits and tiered fees
Take a close look at how banks pay interest on your balance. In some cases, you earn an extraordinarily high rate, but limits and tiers can limit your earnings. For example, SmartyPig in mid-November paid 0.80% APY on its first $ 10,000. After that, you will get lower rates at the later higher tiers. If you have substantial savings, do the math to find out how much you are actually going to earn after taking your entire balance into account.
Should I change banks to get a higher rate?
Now that you know the issues, here is where looking for a better interest rate makes the most sense:
Your current bank pays next to nothing.
The difference in interest earnings, in dollars, not just APY, is worth the time and effort required to make the switch.
You will feel free to open accounts and transfer money to new banks.
You have the time and energy to control your bank's and your competitors' rates.
You are willing to change banks repeatedly if necessary.
Alternatives to savings accounts
If you want to earn more with your money, you may not need to change banks. Or, if you change banks, another savings account may not be your best option. Explore alternative savings vehicles that can pay more for your money.
Certificates of Deposit (CD)
If you can lock your savings for an extended period, a CD can pay more than your savings account. Banks often pay higher fees for CDs in exchange for their commitment to leave the money intact. You may need to select a relatively long term, such as 12 months or more, to get an attractive rate. To find out how much you can earn, check out our list of the best CD rates.
Money market accounts
Sometimes money market accounts pay attractive rates. A money market account is similar to a savings account (and with some banks, there is practically no difference), so include these options in your search. Traditional money market accounts allow you to spend with your account, although banks and credit unions limit how often you can. For example, you can schedule bill payments or spend with a debit card three or six times a month.
Standard checking accounts don't pay interest, but "reward" checking accounts pay surprisingly high fees. For example, some banks pay 3% or more on your balance, but limit the balance that receives the highest rate (the maximum can be $ 15,000 or more, depending on the bank). Also, you may need to meet specific requirements, such as using your debit card 12 times a month.
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