Remy Blaire: On average, Americans aren’t earning much interest. The average APY, or total rate of return you earn on an interest-bearing deposit account over the course of one year, is 0.65%, with the top-yielding savings accounts paying 4%. Users holding their funds in low-APY accounts are missing out on hundreds of dollars in interest each month. But to do so, users have to ditch the big banks and move their funds to brokerages, neobanks and charter national banks. Joining us this afternoon to weigh in is Karen Bennett, consumer banking expert for Bankrate. Karen, good afternoon. Thank you so much for joining us. Well, American savers can now secure higher yields on savings accounts. So break down why you say Americans should move their funds based on how much interest they receive.
Karen Bennett: Thank you, Remy. It’s great to be here. Right now we’re seeing top-yielding savings accounts earning right around 4% APY, and in some cases even slightly higher, whereas the national average rate is currently sitting right around 0.6%. And then of course, you have bottom-of-the-barrel rates, often from big banks with branches, that are just 0.01%. So basically we’re seeing around a 400 basis point spread between the lowest rates and the highest APYs, and consumers could be earning so much more money if they have their money in one of these high-yield accounts.
For instance, if you have around $10,000 in a high-yield savings account that’s earning a 4% APY, that will earn you about $400 a year in interest. If you have your money in an account earning that lower national average of just 0.6%, that’s only about $60 a year in interest, whereas 0.01% is only going to give you about $1 in interest [unclear: “on that same vein”]. So for consumers, for savers, where you keep your money is a really important factor.
Remy Blaire: Yeah, and indeed, because when you start comparison shopping, the ranges are quite vast depending on how much you deposit. So why haven’t traditional brick-and-mortar mega banks felt that competitive pressure to raise their standard savings yields?
Karen Bennett: Well, often the mega banks have long-time established customers. Bankrate has found that sometimes people will keep the same savings account for multiple decades, 10, 20 or 30 years or longer. And so they have loyalty to that bank and the whole inertia effect, so they stick with that bank for longer. And the bank might not necessarily feel the need to be shelling out higher rates on the APYs.
On the other hand, a bank that’s just an online-only bank that doesn’t have branches, chances are they’re newer. They may be a little bit less established, and so they’re often more willing to pay out high APYs, both to attract new customers as well as to retain the deposits that they already have. And as I mentioned, the online-only banks aren’t paying the overhead of maintaining branches, so that often gives them a little bit more leverage to be able to pay out higher APYs to their customers.
Remy Blaire: And as you mentioned, Karen, top accounts offer 4% APY or higher. But beyond the headline rate, what fine print should consumers be watching out for?
Karen Bennett: Sorry, can you say that one more time?
Remy Blaire: Yes, of course. So what fine print should consumers out there be paying attention to?
Karen Bennett: Well, definitely look for [unclear: “the raid API”]. That should be a big thing, to make sure that you’re earning the maximum amount of interest on your savings. And then also look for other things in a savings account. Look at what the monthly maintenance fees are. Oftentimes, the bigger banks with branches that are paying the lower rates, more commonly those banks will be charging monthly maintenance fees. It might be avoidable, it might not be. But usually with a bank that is just an online-only bank that’s paying the higher rates, oftentimes they don’t charge any monthly maintenance fees. You don’t need to maintain a minimum balance to avoid them.
And then also look for things like minimum deposit for a savings account. Oftentimes you might have to put in a minimum of $100, $500, $1,000, and sometimes you won’t even earn interest on a balance that’s lower than that. So again, it always comes back to the online-only banks. They often do not charge fees, they don’t have any minimum deposit requirements, and oftentimes you’re going to see higher rates from them as well.
Remy Blaire: And Karen, when consumers do actually move deposits to smaller online banks or some fintech platforms out there, what should they verify regarding FDIC insurance coverage as well as sweep network structures?
Karen Bennett: Well, it’s important to make sure that when you’re keeping your money at a bank, it has FDIC insurance. This means your money is safe. If the bank were to fail all of a sudden, you wouldn’t be losing any money, as long as it’s within the FDIC guidelines and limits of $250,000 per depositor, per ownership category, per bank. The beauty of a sweep account is that it will possibly enable you to have more than that $250,000, because they’re sweeping your money into different banks out there. [unclear: “And so you’re some of them”], and they’ll usually tell you upfront in their fine print what that amount is. Sometimes you could get $500,000, and sometimes you can get even more than that.
Remy Blaire: And finally, before I let you go, because high-yield savings accounts have variable rates, they will adjust depending on Fed rates. But at what point should savers consider locking in returns with CDs or Treasuries instead of relying strictly on liquid savings?
Karen Bennett: Well, a CD locks in your money for a term typically between three months and five years. It could be longer. The beauty of a CD is that it can be a good savings vehicle, especially when we’re in a falling rate environment. At that point you could lock in a high rate, and then no matter what happens to the going rates on new CDs, you’re still going to earn that rate until the CD matures. However, on the other side of the coin, if we’re in a rising rate environment, then it might not be as good of an idea to lock in your money in a CD, because then you’re going to see higher rates that you won’t be able to take advantage of. So if you feel that rates are going to rise soon, APYs on savings accounts or on CDs, it might be a good idea to hold off.
If you do really want to open a CD at this time, your best bet might be to consider a CD that has a short term, three months, six months, or a CD that charges no penalty for early withdrawal. This way you’ll have access to your money sooner should you want to take that money and move it someplace else, whether it’s a new CD with a higher rate or another investment.
Remy Blaire: Well, Karen, we will have to leave it there for today. But thank you so much for joining us, and thank you so much for sharing all of your insights today.
Karen Bennett: Thank you, Remy. My pleasure.
