Interest rates have been on everyone’s minds this year—but do you know how much you’re earning on your cash savings? If not, you might want to sit down and brace yourself.
Chances are you’re earning a measly 0.25% interest on your savings. Meanwhile, the cost of living exploded this year, reflected in the largest Cost of Living Adjustment to Social Security benefits since 1981 (8.7%). At that rate, your money is losing value just sitting in your bank.
Most of us have had the same bank for years or even decades. But in the current high-inflation, high-interest rate climate, this might be a mistake.
Low-Interest Rates at Big Banks Are Costing You
In 2023, being loyal to your bank could end up costing you big time. According to Bankrate’s most recent weekly survey of institutions (July 24, 2023) the national average yield for savings accounts is 0.53% APY. At that rate, $10,000 in savings would earn only $53 in interest over an entire year.
Check this out:
Bank of America’s Advantage Savings account earns just .01% interest. Even their highest tier savings account, Advantage Savings Diamond Honors, pays just .04% interest. And when you consider the $8 monthly maintenance fee on savings accounts, this bad deal just gets worse.
One of the country’s largest credit unions, Navy Federal Credit Union, advertises .25% APY for their basic Share Savings Account. Other accounts at this credit union, like the Jumbo Money Market Savings Account, pay better rates of 2.25%. But you have to deposit very large sums (like, over a million dollars) to get the highest rates.
You Could Be Earning 4% or More
Meanwhile, some online banks currently offer over 4% APY in what are often called high-yield savings accounts. At 4%, that same $10,000 would earn $400 per year in interest. At rates like that, staying put is like leaving free money on the table.
If you have savings (or excess cash) at a bank that pays a low-interest rate, it’s worth looking at your options. Many online banks and credit unions also offer sign-up or referral bonuses to attract new customers. They also often have no monthly fees and 24/7 customer service. Plenty of well-known and well-rated banks and credit unions have great rates: \
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SoFi - 4.40% a APY as of July 28, 2023, with no minimum deposit or account fees
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Marcus Online Savings Account - 4.15% APY on all balances, no minimum deposit or account fees
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Wealthfront - 4.80% APY as of July 28, 2023, no minimum deposit or account fees
Or, you might be able to stay at the same bank, but just switch to a higher rate account. Call and ask to explore your options. For example, CitiBank’s Accelerate Savings account pays 4.05% APY and the minimum deposit is still $0.
Make Your Money Work Harder for You in 2023
Loyalty and trust are important. But so are your financial freedom and security. Many baby boomers and retirees stick with the same bank for years out of habit, not realizing how much interest they’re missing out on.
In an economic climate where every cent counts, here’s how to make your money work harder for you:
Shop Around to Compare Rates
Do some research on the interest rates offered by other brick-and-mortar banks in your area, as well as online banks and credit unions. You’ll likely find higher rates, especially for savings and CDs. Even a small difference of 0.50% in APY can add up to hundreds of dollars over a year for larger balances.
By the way, switching banks is easier than you might think. With online banking, it takes just a few minutes to open a new account and move your money over electronically.
Newer players in the space tend to offer higher rates, as well as strictly online options that can afford to offer better rates.
Don’t worry, online-only banks still offer human support in case you need help with anything. They’re FDIC insured just like the big players. And who wants to go to a physical bank anymore, anyway?
Look for High-yield Savings Accounts
High-yield savings accounts, or HYSA, offer interest rates several times higher than average, with rates of 2-5% APY or more being common. High-yield accounts work just like a savings account. Your money is liquid and instantly accessible, with no fees to withdraw.
These accounts are FDIC insured for up to $250,000 per account. So, your money remains easily accessible but earns much more interest. Many reputable banks like Ally, American Express, and Barclays offer HYSAs.
Keep an Eye on Rates Over Time
Some banks, such as Wealthfront, align their interest rates with the Fed. Which means when inflation calms back down, some rates will go back down. You’ll still likely be in a better position than your old .25% rate, though. If returns are your biggest priority, you can keep an eye on things and move your money where the best rates are.
There’s no need to overcomplicate things, however. If your current bank is paying 3% or more, it really isn’t worth the time to open a new account.
The bottom line is, if your current bank isn’t offering you at least 2% in interest on your savings, it’s costing you money. Make the switch to a high-yield savings account at one of these reputable banks to earn the most on your cash reserves and stop throwing away your hard-earned money. Your future self will thank you.
Have you considered how your cash savings plays into your bigger retirement picture? Download our Essential Retirement Guide today.
Disclosure: For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is based upon third-party data which may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Indices are unmanaged baskets of securities and are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio nor do indices represent results of actual trading. Information from sources deemed reliable, but its accuracy cannot be guaranteed. Performance is historical and does not guarantee future results. Total return includes reinvestment of dividends and capital gains. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this article. By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements, or representations whatsoever by us regarding third-party websites. Wealth Legacy Institute is not responsible for the content, availability, or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products, or services available on or through these third-party websites. The opinions expressed by featured authors are their own and may not accurately reflect those of Wealth Legacy Institute®.
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