In General, It’s About the Size of Your Deposit
As a general rule, you get better interest rates with larger deposits. This is because banks can make more money from sitting on your reserves than they can with a much smaller account. Despite this, interest rates are still historically fairly low, but as of summer 2018, we are starting to see them perk up a little bit. It is because of this that savings accounts are starting to become a bit more attractive and should continue to be so going forward, as rates should only climb higher from here.
In the following list, you will see the name of the institution, the APY, or Annual Percentage Yield, and the minimum balance to receive that interest.
- Salem Five Direct: 2.05% with a minimum balance of $100
- VirtualBank: 2.01% with a minimum balance of $100
- Citizens Access: 2% with a minimum balance of $5,000
- iGObanking: 2% with a minimum balance of $25,000
- BankPurely: 2% with a minimum balance of $25,000
- NBKC: 1% with a minimum balance of $.01
- Sallie Mae: 1.90% with no minimum balance
- CIBC Bank USA: 1.90% with a minimum balance of $1
- PurePoint Financial: 1.90% with a minimum balance of $10,000
- IncedibleBank: 1.88% with a minimum balance of $25,000
As a General Rule, Online Institutions Pay More
Overall, online institutions tend to pay more for savings accounts for several reasons.Firstly, they need to earn your business as many people will not be familiar with them.
That of course has a certain amount of suspicion attached to it, and therefore people would be a little bit leerier to take a chance on these institutions, even though they are insured by the FDIC, in the same way as your local bank is. Because of this, you can take advantage of their need to attract business.
Beyond that, online institutions don’t have anywhere near the overhead that a brick-and-mortar bank will have. With that being the case, they can afford to pay a little bit more in interest as they don’t have to pay for things like tellers, rent, construction, and day-to-day operations in a physical building. If you are comfortable with your money being held online, this can be an excellent opportunity for you. Essentially, the best way to explain it is that this would simply be the same as banking with your local institution under most circumstances, as most transactions are done online anyway. The main difference will be that you can’t walk into the local branch and withdraw your money. Because of this,you should keep this in mind if you plan on getting funds transferred to you, as it may take a little bit longer. However, the very function of a savings account is to put money away for the long term, so for most people, this shouldn’t make any difference.
Keep in mind that interest rates are expected to rise in the United States over the next couple of years, and this will force banks offering savings accounts to become even more aggressive to attract business. It is only a matter of time before we get a bit of a“bidding war” in the savings account world. With that in mind, you should check around to find the best deal. Beyond that, some banks are even competitive with smaller deposits now. When you look at the list, you can see that some of the banks demand large deposits of $25,000. Most people simply don’t have $25,000 to put into a savings account, so for many of you, some of the smaller requirements will make more sense,and this is where the online institutions are the better option. They typically can offer incentives with lower amounts, due to those lower overhead costs.
Regardless, having a savings account is crucial these days, and something that far too few people do. With this in mind, we encourage you to look around and find the best rate possible, but at the same time, saving money is crucial for your financial health regardless of the interest rate return. Too many Americans have used credit cards to bail themselves out of financial jams over the last several years, when a simple savings account would have done the trick. Check often with these banks, because they tend to be the front runners when it comes to interest rates over the longer-term.