When interest rates rise—as they have over the past year—the outlook for savers improves. But where you keep your cash matters.
Shopping around for a higher annual percentage yield (APY) on your savings or checking account can pay off. If you switch from a savings account yielding 0.01 percent to one with a 3.5 percent rate, interest earnings could boost your balance by up to 3.6 percent in a year and 41.7 percent in 10 years, according to DepositAccounts, a bank account comparison site.
And switching to a new savings account is fairly simple. You may need to look up the routing number and account number of the checking account or other account that will fund the savings account, but otherwise the setup process can be completed online in minutes.
The APY on your savings account changes over time at the bank’s discretion, so it’s important to keep tabs on what your account is earning compared with other top-yielding accounts. Instead of increasing rates on existing savings accounts, some online banks are creating new savings accounts with higher rates. Unless they open new accounts, existing customers with the old savings accounts earn the lower rates.
Online banks often provide the best savings yields. The Interest Savings Account from Bask Bank, for example, recently required no minimum balance and had an APY of about 4 percent. American Express, Barclays, Capital One and Synchrony all offer savings accounts with APYs upward of 3.3 percent and no minimum-balance requirement.
Switching a checking account can be more of a headache than switching a savings account. Typically, regular bill payments, paychecks and other accounts are tied to a checking account, so switching is often a time-consuming process. But moving from a checking account with an APY of 0.01 percent to one yielding 5 percent to the highest checking rate DepositAccounts found in a December study—could mean a balance boost as high as 5.1 percent in a year and 64.5 percent in 10 years.
And a better APY may not be the only compelling reason to switch a checking account. “If you’re moving from a checking account that’s charging you fees every month to one that’s free, it’s worth the investment of time,” says Greg McBride, chief financial analyst for Bankrate.com.
Rather than use an online bank, savers might turn to smaller, local brick-and-mortar banks that offer rewards checking accounts, which provide higher interest rates up to a certain balance. The catch with these is that you have to make a minimum number of debit card purchases monthly to qualify for the high rate, says Ken Tumin, founder of DepositAccounts. This, in addition to the time-consuming nature of switching checking accounts, is a good reason you might choose to focus on savings accounts at online banks to take advantage of higher interest rates, Tumin says.
(Emma Patch is a staff writer at Kiplinger’s Personal Finance magazine. For more on this and similar money topics, visit Kiplinger.com.)
