The interest rates for traditional savings accounts are almost non-existent – typically in the range of 0.01% to 0.05% APY. That is a slightly better rate than you will get from sticking money under your mattress. Why bother getting out of bed to deposit in one of those accounts?
You need to keep a certain amount of cash in liquid form, but there is no reason to put up with infinitesimal interest rates. It is possible to get returns of 1% or better and retain liquidity.
There are three primary methods:
- Online Banks – Thanks to the absence of brick-and-mortar facilities, online banks have tremendously lower overhead. Banks such as Ally, EverBank, GE Capital, Synchrony, and Bank5 Connect rank among the top high-yield savings accounts, and often provide a variety of perks such as online interest calculators, photo check deposits, travel discounts, and reimbursement of ATM fees.
Given that these are online banks, it should come as no surprise that they also have excellent apps for smartphones and other mobile devices.
- Credit Unions – While not free of overhead like online banks, credit unions are capable of significant savings. They are not-for-profit organizations by definition; collectives that exist for the benefit of limited memberships. Since they do not have to worry about a focus on profits, resources can be used to provide better rates for their members/customers.
While credit union memberships are limited, some definitions are extremely broad, and you may fit the criteria to join a credit union that has preferable interest rates. You can review the Credit Union Directory at the website of the National Credit Union Association (NCUA) and check the interest rates of those where you may be able to join.
- Promotional Deals – It is unlikely that any traditional bank can offer a promotional deal comparable to what online banks and credit unions can offer, but they can offer some improvement – and promotional deals within online banks and credit unions can enlarge the pool of candidates that meet your criteria for acceptable interest.
Check for any restrictions or special conditions. For example, an account may require a high minimum balance or a minimum number of transactions. Also, investigate the terms of modifying or closing the account in the future – there may be associated fees or penalties.
Online searches can yield the best rates on savings accounts, CD's, Money Market accounts, interest-bearing checking accounts, and even bonds on both a national and regional level. Read the fine print, and then get information on your institutions of interest at the Federal Deposit Insurance Corporation website. You want to make sure that your deposit is covered by the FDIC. Many Credit Unions are covered by the National Credit Union Insurance Fund or other insurance.
As of June 2014, it is not easy to reach a full 1% without promotions, but there are a couple of savings accounts offering 1.00%–1.01% with only a $1 minimum: Buffalo Prairie State Bank and Biscayne Bank. Easier to find are savings accounts in the 0.80%–0.95% range. As you look through all your savings account options, keep one thing in in mind – unless inflation is under 1%, all you are doing is treading water with this account (currently inflation is close to 2%). Moreover, it is Federal Reserve policy to try to keep inflation around 2% to keep the economy from stagnating.
Therefore, the takeaway message is to keep an emergency reserve in these higher-yielding savings accounts to keep them liquid – and get out of bed, take the rest of your money out from under the mattress, and go to work on the rest of your investments. Rise and shine!