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Interest rate hikes over the past few years have been a saver’s delight, but your return can vary based on where you park your savings.
Your best bet for snagging the highest rate is an online-only personal savings account, which even beat the average rate on a one-year Certificate of Deposit (CD), according to the Banking Landscape report released Thursday by finance site WalletHub. That study analyzed nearly 2,700 deposit accounts.
And if you need regular access to your money, rates at credit union checking accounts are 65 times higher than those at regional banks, and they charge lower fees.
Credit unions can offer higher rates because of “their small, local, and nonprofit nature, which results in lower overhead costs,” said Alina Comoreanu, WalletHub senior researcher.
Here are more banking trends and tidbits to help you get the most out of your cash:
Where are the highest savings interest rates?
Online savings accounts continue to beat their brick-and-mortar counterparts by a wide margin. Their rates are 4.9 times higher than their branch-based counterparts and 3.7 times more than traditional checking accounts, WalletHub said.
A few banks recently lowered their online rates. But with the Fed remaining in higher-for-longer mode on interest rates, most online banks should keep their online savings and money market rates steady, said Ken Tumin in his Bank Deals Blog earlier this month.
After three consecutive months of hotter-than-expected inflation, economists lowered their forecasts for rate cuts this year to between zero and three from as many as seven at the start of the year.
“A run-of-the-mill online savings account,” yielding 3.84% annually is roughly 24% more than the average 1-year CD of 3.09% annual percentage yield (APY), WalletHub said.
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Where are the best checking accounts?
Credit unions have the lowest fees, highest rates and most features, WalletHub said.
On average, they’re 47% cheaper than checking accounts from small banks and 75% less expensive than those from national banks, it said. They also have roughly 1.6 times more features and their rates are 8.1 times higher, on average.
“Credit union members are also shareholders, which means that profits are returned to members in the form of better rates and lower fees,” Comoreanu said. “This is in contrast to banks, which aim to generate profits for their stockholders.”
To save money, consider electronic statements wherever you bank. The cost of receiving a paper statement grew by 8.95% over the past year, WalletHub said.Looking to stash some cash? These places offer the highest interest rates and lowest fees.
Where are the highest CD rates?
Again, credit unions win across all maturities, from three months to five years, WalletHub said. National institutions were the lowest across the spectrum.
Regional banks were second with the best rates in shorter maturities (three months to one year), but community banks ranked second for two-, three- and five-year CDs.
Specialty checking accounts
Business accounts are the most expensive and offer the lowest rates, WalletHub said.
They’re 87% more expensive than branch-based personal checking accounts and 5.6 times more expensive than online-only personal checking accounts, the report said. Their interest rates are generally 66% lower than personal accounts and have 68% fewer features than online-based personal accounts.
“Small business owners who aren’t looking for business-specific features should gravitate to personal banking options whenever possible – much like with credit cards,” WalletHub said.
Student checking accounts have the lowest fees, making them 73% less expensive than their general-consumer counterparts. “But lower fees come at a cost,” WalletHub said. Interest rates offered to students are 84% lower than those for the general population.
Best Places to Stash Cash: High Interest Rates and Low Fees
Online Banks
Online banks are financial firms that operate only on the internet. Consumers can access their accounts 24/7 through an online interface. The only tangibility that separates them from a traditional bank is the fact that they have FDIC insurance. Online banks can afford to offer higher interest rates and lower fees because of fewer overhead costs.
A recent study by Bankrate.com found that the average interest rate on an online savings account was 1.471 percent, while the average brick and mortar bank’s savings account is 0.273 percent. Online banks’ interest rates are more competitive than traditional banks, which is good for consumers but can be very damaging for the economy.
Interest rates influence consumer spending; the lower the rate, the more spending. This is somewhat due to the fact that a lower return on interest-bearing accounts encourages consumers to spend instead of saving. This increase in consumption could be harmful to the economy if it is being financed off credit. High interest rates also have the power to attract foreign investment.
Foreign investors must purchase the nation’s currency to which they buy bonds or other interest-bearing securities. This increases the demand and value for a nation’s currency.Looking to stash some cash? These places offer the highest interest rates and lowest fees.
Foreigners will have to exchange their currency for the one that the interest-bearing account is held in. This increases the demand for the nation’s currency and exchange rate. This can also lead to a balance of payments deficit. Although it is damaging to the economy, higher interest rates have a plus being more competition in the banking industry, which could lead to better productivity.
Competitive interest rates
Online banks are able to offer higher rates in comparison to traditional banks because of their lower overheads. Whereas a traditional bank may pass on its costs in the form of higher fees and lower interest rates, online banks are able to pay more back to their customers. Due to the recent global financial crisis, there has been a flight to quality as people and businesses move their funds to the safest institutions, not necessarily the ones offering the highest rates.
This has had the effect of actually increasing the gap between the rates of traditional and online banks because the largest factor that was separating the two, personal trust and confidence in the safety of the banks, has now all but disappeared. Rates vary between online banks, but the best-known institutions offer in excess of 2.00% above the average of the top 4 banks. Though interest rates on savings accounts have dropped significantly over the past year, they are still the highest yielding accounts in relation to risk because they are insured up to $250,000.
Traditionally, the first move to acquiring new customers for a bank has always been to entice them with rates on loans because a current or savings account created with a bank is essentially a low-cost funding source used to facilitate lending. In recent times, many banks have been reluctant to raise these new customers‘ rates for fear of teaching them to be rate sensitive and ultimately having to continue to pay higher rates on funds which are no longer attracting new customers. Due to the nature of online banks having no physical branches, they have always had to compete by offering higher rates, and it has been predicted by economists that the gap between online and traditional bank rates will continue to widen. This is great news for savers.
Minimal fees
Online banks’ physical absence establishes the possibility of lower fees, inspiring customers to economize fees for students or bill-payment services. Yahoo describes recent reporting results of over a one hundred percent higher interest on the incurred by the major banking companies’ standard checking accounts, 1.11% compared to 0.5%.
Still, many online banks will repay any fees charged by other banks to use their ATMs; this mostly likely won’t be a problem vindicate that most online banks allow customers to withdraw from ATM machines for free, the ubiquity of credit card and debit cards enable students to make purchases or cash withdrawals from the ATMs for no fee.Looking to stash some cash? These places offer the highest interest rates and lowest fees.
It’s important to note that as a relatively new at preliminary stage of idea, some online banks will stipulate conditions on their account in order to prevent fees, such as a minimum or maximum balance. A canny perspective customer must be aware of grace these restrictions, which may prove to be more burden than simply paying some regular fees. Overall, however, if properly conducted a minimum restriction and a one-time monthly fee would be more magnitude for a customer in terms of interest and fees saved on the account.