Product Information For High Interest Online Savings Accounts
How Do Online Savings Accounts Work
Over the last two decades, online banks have emerged to offer depositors higher rates on their online savings and money
market accounts than are available in the major money center banks and in smaller brick-and-mortar banks.
Since these online banks do not have expensive branch networks to maintain, they usually pass some of their
savings back to depositors in the form of higher rates.
All online banks and local banks listed on BestCashCow are FDIC Insured.
Unlike certificates of deposit (CDs) or time deposits, money in savings and money market accounts accrue interest on a daily rate. The best yielding savings rates can conceivably change from day-to-day with new online banks emerging or existing banks more aggressively seeking to raise the capital accounts. It is important to check back on BestCashCow regularly to be sure that your savings accounts continue to earn the most competitive rates, no matter what the rate environment is.
The table above lists the highest yielding online savings account rates.
Recent Performance of Online Savings And Money Market Accounts
BestCashCow data shows that the highest yielding online savings account and money market
rates increased through 2017 and 2018. Rates have stabilized with the best rates well above
2.00% in mid-2019, and the next move in the Fed Funds rate as set by the Federal Reserve is
uncertain.
The average online savings or money market rate exceeds the national average rate quite dramatically.
The graph below shows how the average rates for online savings and money market accounts have trended over the last several years.
Even while online savings rates have improved, the the average rate of all online and locally offered savings accounts
in the BestCashCow rate database has increased more slowly and now sits at 0.22%. (The BestCashCow rate database, the largest
in the US, contains rates on over 2,000,000 bank products from all 8,000 banks and 7,700 credit unions in the US.)
Best High Yield Savings or Money Market Accounts
Depending on where you live, there may be banks and credit unions offering rates still higher than the
best online savings rates. Check BestCashCow’s list of the highest yielding local bank rates
and the highest yielding credit union rates.
Best Online Bank Accounts with High Interest Rates
In the above table, you will find a list of the highest online savings account rates, ranked in
descending order by interest rate currently offered. Online bank accounts are slightly different in terms
of their features and the services offered. By reading the reviews of each bank, accessible from the rightmost
column, you will be able to determine which bank is the best for you. Please also refer to the section below
entitled “Best Online Savings Account Rates".
Are Online Savings Accounts Safe?
All bank accounts listed on BestCashCow are insured by the Federal Deposit Insurance Corporation ("FDIC").
The FDIC is a federal government chartered institution that provides insurance to a maximum amount of $250,000 per individual per institution (or $500,000 for joint account holders). All deposits (CDs, Checking, Savings Accounts) held in the same type of ownership at a single financial institution are only insured to $250,000.
However, funds held in different types of ownership (Individual, Joint, Trust, Retirement) may fall under separate FDIC insurance provisions.
BestCashCow.com strongly recommends that you deposit savings in only FDIC insured institutions and that you do not exceed FDIC coverage limits.
Please visit the FDIC's website to determine your coverage limits based on your circumstances.
Advantages of Online Savings Accounts:
- Higher interest rate.
- Often top notch online functionality with 24/7 access, 365 days a year. You can check your balance, update your contact info, make transfers, and order deposit slips at any time. For more pressing issues, customer support is also usually accessible 24/7, so you can talk to an actual human instead of your computer screen.
- Superior online and mobile access. Many traditional banks have been slow to adopt the best web and mobile features to improve the customer experience online.
- Easy money transfer capabilities to and from a primary checking account.
- Liquidity. Depositors can withdraw their money at any time.
Disadvantages of Online Only Banks:
- A variable interest rate. While most leading online banks have not lowered rates significantly in past years, any savings rate can conceivably be lowered at any time.
- There are often new entrants to the market that can disappear as quickly as they arrive on the scene.
- Interaction is only via phone or Internet. You cannot walk into a branch and talk to a
customer service representative if you have a problem with your savings account. Nonetheless,
the leading, high profile online banks provide virtually instant phone access at all hours to a
representative. However, interaction with some of the smaller online banks can be more difficult
as it is ordinarily limited to business hours in their area of operation.
- You cannot get cash or cashier's checks instantly as you can in a branch bank, and matters
where you need to rely on the US Postal system can lead to significant delays and obstacles.
- There is no opportunity to build a relationship with a banker should you need a loan or
additional services in the future.
What is the best account for easy access?
Depending on where you live and how accessible the branch is, you may find that the best account for
easy access is through a local bank or credit union. However, today many high
yielding savings and money market accounts provide such easy accessibility, including through mobile apps,
and can enable such easy transfers to a correspondent account at a local bank through ACH transfers, that
more and more people are opening accounts for cash and savings that they do not need immediately.
Is a high-yielding online savings account your best option?
High-interest savings accounts are always an ideal place to keep your emergency fund or any money to which still you need ready access. Your money will be safer than if you stuffed it under your mattress, and it will grow a bit, too.
Investors will find that keeping large amounts of money in savings and CDs provides them with lower returns but cushions them against market crashes like we experienced in 2000 and 2001 and again in 2008 and 2009.
Compare Online Savings Accounts
Savings Rates at Most Recognized Online Banks
To see how savings and money market accounts compare with CDs or time deposits and bonds, view the BestCashCow income guide here.
Frequently Asked Questions About Online Savings Accounts
What is a savings account?
A savings account is one of the simplest types of bank accounts. It allows you to store cash securely and earn
interest on your money.
What is a money market account?
The differences between a savings account and a money market account are largely arcane. Some savings accounts are limited by US federal regulations to six outbound
transfers per month (the bank may allow additional access for a fee). Money market accounts are technically not bound by those limitations and offer more ways to access deposits by issuing checks and debit cards. Prudent consumers will compare the two interchangeably, focusing primarily on rates and service among FDIC-insured
banks (or NCUA-insured, for credit unions). Consumers who maximize their use of online savings and money market accounts access these accounts through ACH transfers
that are easily set up on the online bank’s website so the additional ways to access deposits that money market accounts offer are rarely valuable.
How to Open a Savings Account?
The process of opening an online savings account or money market account is usually very simple. Banks ordinary ask you a few questions to verify your identify.
These questions include seeking information from a state or government issued ID, such as a driver’s license. Due to increased US anti-money laundering rules and
Department of Homeland Security requirements, it is very likely that you will also be asked to produce a photocopy of your license and a picture taken from your
iPhone or other smartphone and emailed to the bank will ordinarily suffice. The bank may ask for information regarding a correspondent account from which you
intend to have them draw the money to provide the initial funding. You therefore will need the ABA number and account number from an existing account that you have.
They will verify this account by having you log back in to confirm the amounts of one or two small deposits to your correspondent account before they draw the funds
from this account. Finally, many banks do a “soft” credit pull from Experian, Equifax or some other credit rating agency. While your credit rating will ordinarily
not be affected, the application process may involve your answering questions about where you have lived, loans you may have had, past employers or cars you may have
owned. Many people do not enjoy providing the amount of personal information required over the internet; therefore, some of the larger online banks have 24-7 customer
service to guide you through the process. You can see the experiences of others with a given online savings bank that you are considering by reviewing the comments
left in BestCashCow’s table above.
Are online savings rates always better than rates at brick-and-mortar banks?
No. Online banks often offer higher savings and CD rates because they have lower expenses by not having to maintain brick-and-mortar locations.
You should also check rates at local banks and credit unions. Unlike other websites, BestCashCow.com compiles all of these rates, listing them in an unbiased manner
that shows the proximity of each bank or credit union to you. Please access these rates using the tabs above.
Why do savings rates vary so much?
Even though rates are at levels that are historically very low, there is competition for your money. Like any active marketplace, there are buyers and sellers of
goods and services at different prices.
How do I choose the right savings or money market account?
Begin your search with the table here on BestCashCow.com. In addition to
checking online savings rates, you should also check local bank rates
and local credit union rates.
What is the Best Fixed Rate Savings Account?
BestCashCow strongly encourages people to avoid very short-term promotional rates.
The very nature of a savings or money market account is that the rate can change from
one day to the next. Savings rates may be guaranteed not to change for some very short
length of time, but they are not fixed. If you require a fixed rate or greater certainty
that the rate that you are making will not change, you should consider CDs, which represent
a time deposit, for some or all of your savings.
Should I consider CDs?
If you are unlikely to require access to your cash for some time, you may also consider certificates of deposit (CDs). While CDs have penalties for early withdrawal
that may even eat into your principal, the rates on 2, 3, 4 and 5 year CDs are ordinarily significantly higher than savings rates. CDs also offer the certainty of
rate stability for the term of the CD. Several sections and articles on BestCashCow can also help you to identify your proper cash allocation between savings and CDs.
With savings rates at such low levels, does earning a higher savings rate or the best savings rate really
mean anything to me?
Even a difference of a couple of basis points (hundredths of a percentage point) can really add up over time, especially on large sums of money.
You may wish to familiarize yourself with the BestCashCow Savings Calculator in order
to understand the importance of compounding interest at higher rates on your savings over time.
If you have not accessed the
BestCashCow Savings Calculator or mastered
the magic of compounded earnings, here is the plain and simple truth:
- $250,000 deposited at a major money center bank like Chase, Citibank, Bank of America or Wells Fargo is likely earning less than 0.10% APY. That money is
therefore making no more than $250 a year in interest.
- That same $250,000 deposited at a leading online bank is earning over 1% or over $2,500.
- Even though the increased earnings from high yield savings (in this example, $2,250 annually) is fully taxable at the federal and state and local levels,
wouldn’t you like to be earning that extra income from high-yielding savings accounts?
What does APY mean?
“APY” stands for annual percentage yield. Savings rates are displayed in terms of APY to indicate the effective annual-interest return, including the compounding of interest, over the course of a single year. $100,000 deposited in a savings or CD account with a 1.20% APY will earn $1,200 in the course of the year, but monthly interest in the first few months may be less than $100 a month (this also depends on the number of days in the month). Hence, the APY rate is ordinarily a couple of basis points above the real interest rates. Unlike with a CD, your actual APY in a savings account or money market account may vary if the rate changes.
Are you still hesitant to open a high interest-earning online savings account?
Here are some common reasons people hold off:
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You need to make more than six withdrawals a month.
Avoid potential problems by opening a high earning online money market account (some of the best rates available in the table above are actually from online money market accounts), opening a savings account at a bank which does not enforce the 6 transfer limit, tying your account to a correspondent bank’s money market account or checking account at a major money center bank (like Chase, Citibank, Wells Fargo, or Bank of America) where you make one larger transfer each month.
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You like having access to a physical branch.
Find out what the minimum balance required to avoid fees on your account at your physical branch,
then transfer the excess balances to a high yielding online savings or money market account.
You’ll continue to have access to the physical interaction and services of the bank with which
you are used to banking, but you will also be dramatically increasing the interest earned on
cash you don’t need over time.
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You need to deposit large sums of cash or checks in excess of the online bank’s
mobile deposit limit.
In this case, you need access to a physical branch. See point 2, above.
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You want one institution to handle all of your financial matters.
Most online banks do not offer mortgages, credit cards and brokerage services. There is no financial advantage to keeping all of your financial transactions in one or even a handful of institutions.
What is a health savings account?
A health savings account (or HSA) is a tax advantaged medical savings account available to taxpayers
in the United States who are enrolled in a high-deductible health plan (HDHP). The funds contributed
to this kind of account are not subject to federal income tax at the time of deposit.
According to IRS Publication 969 (2016), the interest or other earnings on the assets in the account are tax free and distributions
may be tax free if you pay qualified medical expenses or other expenses not covered by health insurance
such as dental or vision care. Due to the tax advantages of a health savings account, these accounts
should be set up separately through banks offering them (such as Chase or Bank of America) and their
assets should not be comingled with a high yielding online savings account. We know of no online banks
currently offering HSAs.
What is an education savings account?
Education savings accounts, such as Coverdell Education savings accounts and 529 plans, are accounts
that allow family members to obtain certain tax advantages through setting aside funds for a child’s future education.
529 programs are administered at the state level and you must invest in programs
they administer; Coverdell education savings accounts are move flexible (and generally follow
the same rules as IRAs), however we know of no online banks currently offering Coverdell Education
savings accounts.
What is a child savings account?
A child savings account is a savings account in the name of the child with a parent or guardian named
as the custodian on the account until the child reaches the age of 18 or 21 (depending of the child’s state
of residency). A child savings account can be a great way to teach your child the importance of saving money
from a young age. More information on child savings accounts can be found
here.
Ally and Capital One 360 are among the few online banks offering child savings accounts.
Best Online Savings Account Rates
Finding the best high interest online savings or money market account is a highly subjective exercise.
The best account for your neighbor may not be the best account for you. To help you determine which
account is best for you, we have created the following 7 point checklist:
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A competitive interest rate. BestCashCow maintains the most comprehensive list of deposit account rates. The rates above are the best available rates for online savings accounts. In order to ensure that your money continues to grow over time, you may wish to avoid banks which rely heavily on very short term promotional rates (such as EverBank). If you open an account with a promotional rate or even if you open an account where the rate isn’t promotional in nature, you should check back with BestCashCow regularly to be sure that your bank continues to offer one of the most competitive rates.
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Full functionality through online and mobile access. Most of the accounts listed above have robust websites and mobile access that enables full functionality. Read the comments from other users before opening an account as they often highlight problems with access.
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Assess how the bank provides customer service.. Many of the leading online banks now have customer service representatives who are U.S. based and available 24/7 with low wait times. This is often a distinguishing feature that makes a well-recognized bank significantly more attractive than a smaller bank trying to enter the online banking arena.
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Absence of fees. Be sure that you are opening an online account with a bank that doesn’t charge fees and has very low minimum balance requirements. American Express, CIT, GS Bank, Barclays and Ally are all well known for low minimum requirements and the absence of any unusual monthly fees.
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Easy Access to your Cash through Immediate Online Transfers. The reason why you keep money in savings is for access in an emergency or to take advantage of immediate financial opportunities. You need access to your cash. Yet, some banks impose strict limits on the amount of cash that you can access from your account in a single transfer or limit the numbers of transfers you can conduct over a given time period. Other banks can delay your transfers for days while they make money on the float. You should check with the bank where you are considering opening an online account to understand the restrictions before you open an account. You may also read the comments from other users above as they can highlight which banks enable the best access to your cash.
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Stay within FDIC limits! See the section above and read this article.
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Use the BestCashCow Savings Calculator to see how important it is to be maximizing your interest on savings accounts over time.
