Online songs

Savers, now is the time to choose an online bank

You should reconsider the bank you use, at least for some of your savings. If you’re a customer of one of the major retail banks, chances are you’re leaving real money on the table.

High-yield online savings accounts are finally starting to look like they’re actually high-yielding — or at least higher-yielding than they’ve been in recent years.

After keeping rates depressingly low during the pandemic and through the first half of this year, companies like Synchrony and Marcus, the consumer bank of Goldman Sachs Group Inc., have started offering more. For example, Marcus recently increased his payment for a savings account to 1.9%, or 2.9% (for three months) for customers who refer a friend.

Overall, the average return of online savings accounts saw the largest monthly gain in at least five years between August and September, according to Ken Tumin, founder of DepositAccounts.com. As the Fed prepares to raise rates again this week, Tumin says he expects many high-yield savings accounts, many currently paying more than 2%, to rise above 3%.

But don’t think that means the biggest traditional banks will follow. Since savings account interest rates aren’t really regulated, there is a wide variety and it ultimately depends on how a bank wants your money. Currently, the average for all banks, many of which are brick and mortar, is 0.13%.

Household names have record levels of deposits following consumers receiving stimulus payments and spending less during the pandemic. Although there were a few outflows in the last quarter, deposits are still well above pre-pandemic levels and the big banks don’t really need to attract new customers. Jamie Dimon of JPMorgan Chase & Co. said this last year – unsurprisingly, Chase’s savings account rate is currently 0.01%.

Which means if you haven’t transferred money to an online savings account, what are you waiting for?

I know we’re not talking big bucks. But it will accumulate over time. Let’s say you have $25,000 in a high-yield online savings account; at a rate of 3%, you will earn more than $760 per year. Keep this account for a decade without investing any extra money and it will grow over $8,700 to $33,746.

Unfortunately, consumers tend to be quite attached to their current banks. A January survey by Bankrate shows that the average US consumer has kept the same savings account for nearly 17 years. Even among young people, or those in their late 20s and early 30s, savings accounts are typically held for more than seven years.

In addition to the higher payout, it can be helpful to keep money in an online savings account, separate from your daily checking account, as this creates a barrier. You can set up an online savings account as a place for emergency savings, a down payment, or a vacation, to earn more — and be less tempted to tap into it.

Just be sure to review the terms and make sure you understand what is required in terms of minimum balances to avoid maintenance fees, or if there is a cap on how much interest you can earn at course of the year. Often the online banks that offer the highest rates will do so in exchange for you paying out a set amount of money or maintaining a certain balance. Take UFB Direct – you’ll earn up to 2.6%, but you’ll be hit with a $10 monthly fee if your balance is below $5,000. Also, beware of fintech companies that tempt you with returns above 4%, but aren’t. necessarily the banks. You should only give your money to an institution backed by the Federal Deposit Insurance Corp., which means that if it goes bankrupt, you’ll be covered for up to $250,000.

Finally, if you’re looking for something more profitable in online banking, rates on certificates of deposit, where you lock in money for a set period of time, have also jumped. The catch with these is that the rate is fixed – you’ll be locked in for the duration of the CD – and if online savings account rates continue to climb, you could miss out.

When it comes to savings accounts, it doesn’t have to be all or nothing. At the very least, keep your old bank, but add an online savings account. The few minutes it takes to fill out some personal information is well worth $8,700.

More writers at Bloomberg Opinion:

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• Inflation? Labor is the biggest problem: Tyler Cowen

• Resist the siren song of 40-year mortgages: Alexis Leondis

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Alexis Leondis is a Bloomberg Opinion columnist covering personal finance. Previously, she oversaw tax coverage for Bloomberg News.

More stories like this are available at bloomberg.com/opinion