How to Get the Highest Interest on Your Savings Account
Interest rates on savings or money market accounts are around .01% right now. The low rate is due to multiple factors, mostly the state of our current economics. Interest rates on deposit account typically match the interest rate for loans in that when one is low, so is the other (and vice versa). This is essentially because the bank uses the money you put in your savings to loan out to other customers. The less money the bank gets in interest from the loan recipient, the less money you get. Now, here’s the thing… the bank is getting at least 3% interest on the loans they’re giving out, but only giving you .01%. That means if you have $5000 in savings, you’ll only make about 50 cents in interest after a year.
The first thing to keep in mind is that banks are for-profit so they have to make money somehow, this is one of those ways. The second thing is that your traditional bank has to pay for all their buildings, utilities, employees, etc. to keep running. Think about how many banks are in just your city. That’s a pretty huge overhead cost and it’s coming out of the interest you could be making.
The good news is that there is a way to get a higher interest rate on your savings account and you don’t need a ton of money to do it. Internet banks have much less overhead cost and they use those savings to give their customers a higher interest rate. Banks like Ally offer between .75% to 1.05% on savings accounts. So, if you have $5000 in your savings that means you’ll get $37.50 – $52.50 after 1 year instead of just 50 cents. This is especially important because your emergency fund is likely to sit in an account untouched most of the time. So, you might as well make some money from it!
If you’re thinking of switching to an internet bank, just make sure whatever bank you choose is FDIC insured.