If you’re looking to grow your savings, then you should consider an online-only savings account, which can give you more bang for every buck you save.
According to the FDIC, the national average APY (annual percentage yield) on a savings account during the week of July 15, 2019 was 0.10%. That’s pretty low. To put it into perspective, use a savings interest calculator like the one offered by Nerdwallet.com. According to this calculator, if you put $10,000 into a savings account with a 0.10% interest rate and left it there for a year, you would only accrue $10 in interest. In contrast, if you were to go with a savings account that offered a 1.05% APY* (like BankFive’s eAccess Savings Account), you’d be looking at around $104 in interest over the course of a year for the same $10,000 deposit. The point is, your interest rate matters.
So how do you find a competitive interest rate on a savings account? One option is to move your money to an online-only bank. These virtual banks typically offer higher interest rates than their traditional brick-and-mortar competitors. The main reason they can afford to offer higher rates is because they have less overhead. Compared to an online-only bank, a brick-and-mortar bank has a lot more expenses, such as staffing and maintaining branches.
Of course, not everyone is comfortable with leaving large sums of money in a virtual bank. Many people like the idea of being able to walk into a branch to withdraw money or get help if they need to. The good news is that many brick-and-mortar banks have begun offering their own “online-only” savings accounts with interest rates that are more competitive than traditional savings products. This can give customers the satisfaction of having “the best of both worlds”.
Typically, the brick-and-mortar banks that offer high-interest savings accounts are able to do so by cutting costs just like the online banks. The idea is that a customer will use an online account mostly online, reducing traffic in branches, helping to lower the bank’s staffing costs. With some online-only accounts, the bank will charge the customer a small fee for in-branch visits. So, you’re able to reap the benefits of a higher interest rate, while still having the branch available to you for a minimal cost.
Most online-only accounts also utilize eStatements instead of paper statements, which are typically less expensive for the bank to produce and distribute. In a day and age where many Americans perform their banking functions from mobile phones and laptops, this can be a welcome change.
If you’re looking to harness the savings power of higher interest rates by opening an online-only account, just be sure to do your homework beforehand. First and foremost, you’ll want to make sure you’re choosing a legitimate, trustworthy bank that is insured by the FDIC (or the NCUA in the case of credit unions). FDIC coverage usually protects up to $250,000 per depositor at each FDIC-insured bank.
Some banks, like BankFive, even provide coverage past FDIC limits, but at the very least, you’ll want to find a bank that is FDIC insured. If you’re opening an online-only account with your current brick-and-mortar bank you’ll likely already have peace of mind on this front, but if you’re switching to an online-only bank you’ll need to do your research first to verify that your deposits will be safe.
Since you’ll be doing the bulk of your banking online with this type of account, you’ll also want to learn more about the bank’s Online Banking features and mobile app to ensure you’ll be able to manage your money effectively without having to go into a branch on a regular basis.
Online-only banking isn’t for everyone, but it’s nice to have it as an option, especially if you’re in search of a savings account with a higher interest yield. For more information about BankFive’s high-interest eAccess Savings Account, visit https://www.bankfive.com/Personal/Save/Savings-Accounts/eAccess-Savings.
*APY=Annual Percentage Yield.
Rate effective 7/29/2019. Rate may change after account is opened. Fees may reduce earnings.