Certain rates on this table are from BestCashCow.com advertisers.
Compensation may impact the order in which rates appear.
This is to inform our readers that BestCashCow has received compensation for the placement of this bank offer.
Highest Online Bank Rates for Savings And Money Market Accounts - April 1, 2023
Savings Account National Average Rate: 0.10% ?
The Federal Reserve acted today to increase the Fed Funds rate to a target of 4.75% to 5.00%, and said that additional policy firming may be appropriate.
Many observers wanted the Fed to suspend raising rates, in light of the collapse two weeks ago of Silicon Valley Bank and Signature Bank and resulting banking turmoil. Chairman Powell and the committee decided that (...read more in the Recent Articles section below the rate table).
Last change: ↑0.47% on March 13.
UFB Preferred Savings. Bank reports that this rate is for new customers only.
ba_khlo | Mar 24, 2023
I haven't had any issues setting up a link to existing bank account like previous reviewer. Initiated transfer on Tue, money has not been credited yet on Fri, and now I am told Tue. That's way slower than ...
Read More
Last change: ↑0.35% on March 11.
Magnetic Money Market. Bank reports that this rate is available for new accounts only. External transfers are limited to $5,000/day and are not free.
Last change: ↑0.10% on March 21.
Cornerstone Money Market Account. Bank reports that this account is available to new customers only. Old account holders in the savings product are earning 1.10%.
Aussie10024 | Mar 7, 2023
This bank is a waste of time. Tried to set up account. Denied. Called the bank as it states in the denial. Waited on hold for 25 minutes. Rep told me they could not any reason why it was denied but I shoul...
Read More
Last change: ↑0.25% on March 30.
Online Savings Account. Ivy Bank's Indexed Savings Account offers 4.32% APY.
Hijo de Manuela | Mar 9, 2023
I am a big fan of this one. The rate is now 4.25% on the online savings product, but 4.75% on the indexed product. While they don't allow a product switch, you can open the indexed with 4.75% then move al...
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Last change: ↓0.55% on March 27.
Direct Money Market Account.
79Thru | Mar 21, 2023
Parent seems to be owned by a large Chilean bank. Not saying this is good or bad, but it is complication, especially in the current environment.
Read More
Last change: ↑0.05% on March 29.
High-Rise savings. Bank reports that this rate is available for new accounts only.
Mysteriosa | Mar 14, 2023
I had two 5 year CDs. Once in 2021 and again in 2022, PD claimed that my account had been abandoned. As far as I know, PD had made no effort to reach me, and I had been logging in once/month to check my ...
Read More
Having had accounts at 68 DIFFERENT BANKS & CREDIT UNIONS in my life, I may have become an expert on good and bad services. Here is why I've given Primis 4 stars:
1. Interest rate. Like many who have rece...
They said would notify me in 2 business days about my savings application which had nothing wrong. 5 business days now and no response was given, not even an email.
Read More
The rate is not always competitive (but I am checking now on October 3, 2022 and it is above Ally, Barclays, Marcus, Synchrony). I still give CIBC an A+. It is all about transfers. Theirs are easy, reliabl...
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I was shopping for deposit rates in August, and NerdWallet, a site I had previously trusted, had it on their list. I was unaware they took deposits. They are the only bank that ever duplicated a transactio...
Problem with ties to puppy mills. I closed a cct. https://www.americanbanker.com/news/tab-bank-dragged-into-seedy-world-of-puppy-mill-loans-by-fintech-partner
How often do people agree? When the overall rating is two stars, then this bank has to be terrible. Try finding multiple deposit accounts; try waiting on your deposit to post due to them floating your fu...
Prime Alliance Bank has a single branch (outside Salt Lake City) and does an excellent job with distance banking (we are based in Washington state). It stands out in several ways: (1) Interfacing with the...
Last change: ↑0.25% on March 29.
Online Savings Account. Ally's Online Money Market account rate is only 3.75% APY.
AllyAccountOwner | Jan 7, 2023
After being a customer for 12 plus years, I attempted to open and Estate account.
Ally declined my application saying they could not verify me even though I am a long time customer with six figures in a...
Read More
Last change: ↑0.01% on March 8.
External transfers may take up to 3 business days and may be limited to $25,000/day.
jp76 | Jun 13, 2022
3 days for an ach is not market when most banks on this list do it instantly. even frigging rising bank. customer service is beyond dreadful.
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I’ve filed a complaint with the FDIC. This bank keeps rearranging my transactions, even if they’ve posted and are not pending. They also will deny a transaction and charge a non sufficient funds fee ...
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Barclays is the worst. Transfer speeds even worse than Synchrony now. Service is worse than anything. Save yourself the trouble of getting sucked into rates that are sometimes competitive and choose anythi...
not really an onllne bank. compare this interface that gives you no information with that of any other bank (I cannot even confirm the rate). cannot switch in and out of cds or np cds. just not an online b...
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The idea that they aren't competing is wrong. They'll give you 1% more on your savings if you run around promoting their brand and get a friend to sign up. Great marketing scheme actually, since those so i...
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TIAA stole money from university professors and staff and mismanaged assets so badly that a generation of people in academia were denied a comfortable retirement.
Read More
Hello, I am interested in a line of credit against my home. I have a high interest credit card that I want to move to this credit. I have a wells fargo mortgage which is only a few years old which I do no...
People read what you are looking at . . . this section is for CD's not money market accounts. Two different investments types, CD covered by insurance and money markets are not. Know what you are doing a...
Warning, Dollar Savings Direct, My savings direct both play game, interest rate are good, but once you deposit its very difficult to get money out(withdraw), think twice before you put money in,you also lo...
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Been with Etrade-Morgan Stanley for decades. Always fantastic service & can move funds online in a second from savings to brokerage for trading. Very competitive on saving rates. Very happy customer in ...
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Thank you for the reviews above. I was wondering why I was only getting 0.3% when interest rates have gone up. Why CapitalOne360 is putting loyal and long time customers at a disadvantage is beyond me. ...
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Poor service. Condescending attitude.
Savings application denied without giving reason (Equifax file had a freeze because of hacking history) and not advising customer of need to unfreeze credit file for a...
Read More
I joined this bank and went through the process of applying for a HELOC. Everything seemed to be going well with only the paperwork needing to be signed and when I contacted them about having a POA and the...
I have been with PenFed for a number of years, and have gotten good products. Employees have been helpful. However, beware of titling for accounts with trusts.
You will not be able to distinguish betw...
ACH transfers are not allowed. Called and was told that I had to set up wire transfers (and pay fees) or I could come in to the bank and get a bank check.
You probably thought - as did I - that you were looking at a site that belongs to and was the responsibility of Gateway First. After all it includes their headings, selected financial statements, many pag...
Update: STAY AWAY FROM THIS BANK! They have no clue how to run an online bank. This bank is not ready for prime time. Nothing but problems. Customer service is dismal at best.
HORRIBLE SERVICE. My son's campus checking account was hacked and over $9000 was stolen. Fraud department was impossible to reach and we waited on phone several days for over 2 hours at a time. They too...
I've been with this bank for 6 months and have not had any problems. Bill pay works good. The 24 month investing CD is another vechile I use. Rates are above average considering the national rate. I'd reco...
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HORRIBLE SERVICE. My son's campus checking account was hacked and over $9000 was stolen. Fraud department was impossible to reach and we waited on phone several days for over 2 hours at a time. They too...
This bank is a waste of time. Tried to set up account. Denied. Called the bank as it states in the denial. Waited on hold for 25 minutes. Rep told me they could not any reason why it was denied but I shoul...
Read More
Stay away from this bait and switch bank that uses teaser rates. They lowered my interest rate twice in the first 2 months of opening my account. They said they had the right to change their rate at any ti...
Read More
Their online interface is circa 2004. They limit the number of accounts you can set up for ACH. And they sit on ACH transfers.... for days. Not sure if the good rates are worth it.
Read More
HORRIBLE SERVICE. My son's campus checking account was hacked and over $9000 was stolen. Fraud department was impossible to reach and we waited on phone several days for over 2 hours at a time. They too...
I filled out the application 10 days ago answering all questions and sent a file with a copy of my drivers license to Western Bank. I received an email saying that a banker would call me within one busines...
Be aware, when cd comes due, they mail a check to your home which takes 7-10 business days. That is a long time to have money not drawing any interest.
Read More
I have been with PenFed for a number of years, and have gotten good products. Employees have been helpful. However, beware of titling for accounts with trusts.
You will not be able to distinguish betw...
Had a car loan with them. Paid it off because I was selling the vehicle. They told me it would take 10 business days to clear the transaction (it was immediate via electronic) and was out of my account th...
Read More
I have been with PenFed for a number of years, and have gotten good products. Employees have been helpful. However, beware of titling for accounts with trusts.
You will not be able to distinguish betw...
I have been with PenFed for a number of years, and have gotten good products. Employees have been helpful. However, beware of titling for accounts with trusts.
You will not be able to distinguish betw...
All rates listed are Annual Percentage Yield (APY).
The APY rate in a savings account or money market account is a variable rate that is subject to
change at any point. The Min listed is the minimum deposit account balance required to obtain the rate listed.
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:
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.
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.
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.
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.
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.
Stay within FDIC limits! See the section above and read this article.
Use the BestCashCow Savings Calculator to see how important it is to be maximizing your interest on savings accounts over time.
Why You Can Trust BestCashCow
Every year, Americans collectively lose at least $80 billion in income just by putting
their savings in the wrong bank accounts. BestCashCow is the most comprehensive and unbiased
bank rate site on the Internet and our mission is to help you to avoid your share of these
losses. We monitor over 30,000 rates from over 8,000 FDIC-insured banks and 7,700
NCUA-insured credit unions. Take a few minutes to explore the table above to see
the best savings rates currently offered by online banks, or use the tabs to explore
local bank rates or local credit union rates if your prefer to do your banking locally.
By using BestCashCow to move your money to a new bank from one with a low savings rate
you may be able to boost your annual interest earned from savings by more than 10X. Banks
are always competing for your money. Take advantage of it!
The Federal Reserve acted today to increase the Fed Funds rate to a target of 4.75% to 5.00%, and said that additional policy firming may be appropriate.
Many observers wanted the Fed to suspend raising rates, in light of the collapse two weeks ago of Silicon Valley Bank and Signature Bank and resulting banking turmoil. Chairman Powell and the committee decided that today’s action was consistent with its dual mandate of controlling inflation and maintaining maximum employment.
The Fed observed that these recent banking developments were likely to result in tighter credit conditions weighing on the economy, including business fixed investment and housing. The impact is unknown, and possibly deflationary over time and, therefore, the Fed may not need to move as high as Chairman Powell had predicted just weeks ago.
The Fed is still targeting an end of year Fed funds rate of 5.10%, implying one more 25 basis point hike and then a pause. In his news conference, Powell indicated at least twice that market expectations about cuts in the Fed funds rate before the end of 2023 are unlikely. He stated they would not be consistent with the Fed’s resolve to maintain rates at an elevated level until it has seen meaningful progress in its fight to get inflation back to a 2% target, measured by the Consumer Price Index (CPI) and core CPI. These indicators remain in the 5.50% to 6% range.
During his conference, Powell noted that distress in the market has been felt by only a small handful of banks and the FDIC has created ample liquidity to address this condition. The banking system overall is strong and resilient. But when queried, Powell did not give much comfort to depositors looking for more certainty above FDIC limits, or to bank shareholders. And, regional banks came off quickly and sharply after the conference ended.
The FDIC’s and Federal Reserve’s decision to cover fully deposits at both Silicon Valley Bank (SVB) Bank and Signature Bank leaves some uncertainty about whether banks’ deposits are fully insured above $250,000 per depositor per class of deposit. President Biden did not clarify the issue when he spoke this morning to allay depositors’ concerns, even though he explicitly promised that deposits are protected.
There is an issue of moral hazard here. FDIC insurance limits are well established. Should depositors who ignore these well-established limits, and keep deposits above those limits to curry favor with senior bank executives and get certain privileges – as was the case with SVB - get their own rules?
But, still more important than the moral hazard issue here at the moment, is what happens when and if there is another 5 or 10 or 100 bank failures. With SVB Bank and Signature Bank, the FDIC invoked the banks as “systemically important” in order to provide the unlimited depositor protection that it is providing.
Can depositors assume that every bank going forward is going to be systemically important and that they’ll be made whole? Is there a number of banks that is hit when the “systemically important” designation can no longer work or a size of a bank? And, then what is the rule for credit unions and the NCUA?
Since this can only be changed by an act of Congress, and until such act occurs, we continue to recommend that depositors stay within applicable FDIC and NCUA limits.
A great primer on FDIC insurance can be found here.
The Federal Reserve has raised the Fed Funds target rate by 25 basis points to a target of 4.50% to 4.75%. Like the Fed’s six moves in 2022, today’s Fed move was very well telegraphed by Chairman Jay Powell. However, unlike each of the Fed’s five previously moves that were either 50 or 75 basis points, today’s move represents a raise in he target rate o only 25 basis points.
The Fed also states that it continues to see the need for “ongoing increases” in the Fed Funds rate, indicating that it may still not be near the end of its hiking cycle.
The prospect of slower moves had lead market participants to believe that the Fed’s hawkish tone is ending, with perhaps one further 25 basis point increase after this February 2023 move, and that the Fed would be already acting to lower rates by this time in 2024. That looks less likely now that the Fed is projecting ongoing increases.
The challenge here is quite evident. While some observers can manipulate inflation measurements to show that it has brought inflation under control, you would need to be living in a shell not to realize that sellers of most goods or services with pricing power can continue to gouge their customers.
Hence, the logic applied by many economists is that by its very nature, heightened inflation caused by long periods of tremendous liquidity can only be brought under control only by raising rates to the point where they reigning in the economy and perhaps even cause a recession.
If this logic holds true, several more Fed increases will be coming still. And, it is possible that the fact that the markets have yet to respond adversely to the Fed’s hawkishness will give the Fed further leeway to move further and longer than market participants are projecting.
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 Do Online Savings And Money Market 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.
How Do I Open An Online Savings or Money Market 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.
What are the Best 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 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.
Depending on where you live, there may be banks and credit unions offering rates still higher than the
best online savings rates.BestCashCow maintains the largest
rate database – including rates on over 2,000,000 bank products
from all 8,000 banks and 7,700 credit unions in the US –
in enable you to compare online rates with local rates in
your area.
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.
What are the 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.
What are the 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.
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.
Recent Performance of Online Savings And Money Market Accounts
BestCashCow data shows that the highest yielding online savings
account and money market
rates increased from a base around 0.75% through 2017 and 2018 to a peak just over 2.00% in mid-2019.
The Fed Funds rate was lowered in July 2019 and then brought
to zero in early 2020 in response to COVID-19.
As the Federal Reserve raises the Fed Funds rate in 2022
and 2023, online savings rates may eclipse their mid-2019 highs.
The graph below shows how the average rates for online savings and money market accounts have trended over the last several years.
In addition to the broad movement that we see in online savings and
money market account averages according to economic circumstances
and the Fed Funds rate, there is wide variability among rates
offered by the leading online banks.
Even while the online savings average has remained below 0.40% for
most of 2020 and 2021, we have seen some banks offer rates as high
as 0.65% or 0.70% during this time.
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:
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.
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.
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.
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.
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The Federal Reserve acted today to increase the Fed Funds rate to a target of 4.75% to 5.00%, and said that additional policy firming may be appropriate.
Many observers wanted the Fed to suspend raising rates, in light of the collapse two weeks ago of Silicon Valley Bank and Signature Bank and resulting banking turmoil. Chairman Powell and the committee decided that today’s action was consistent with its dual mandate of controlling inflation and maintaining maximum employment.
The Fed observed that these recent banking developments were likely to result in tighter credit conditions weighing on the economy, including business fixed investment and housing. The impact is unknown, and possibly deflationary over time and, therefore, the Fed may not need to move as high as Chairman Powell had predicted just weeks ago.
The Fed is still targeting an end of year Fed funds rate of 5.10%, implying one more 25 basis point hike and then a pause. In his news conference, Powell indicated at least twice that market expectations about cuts in the Fed funds rate before the end of 2023 are unlikely. He stated they would not be consistent with the Fed’s resolve to maintain rates at an elevated level until it has seen meaningful progress in its fight to get inflation back to a 2% target, measured by the Consumer Price Index (CPI) and core CPI. These indicators remain in the 5.50% to 6% range.
During his conference, Powell noted that distress in the market has been felt by only a small handful of banks and the FDIC has created ample liquidity to address this condition. The banking system overall is strong and resilient. But when queried, Powell did not give much comfort to depositors looking for more certainty above FDIC limits, or to bank shareholders. And, regional banks came off quickly and sharply after the conference ended.
The FDIC’s and Federal Reserve’s decision to cover fully deposits at both Silicon Valley Bank (SVB) Bank and Signature Bank leaves some uncertainty about whether banks’ deposits are fully insured above $250,000 per depositor per class of deposit. President Biden did not clarify the issue when he spoke this morning to allay depositors’ concerns, even though he explicitly promised that deposits are protected.
There is an issue of moral hazard here. FDIC insurance limits are well established. Should depositors who ignore these well-established limits, and keep deposits above those limits to curry favor with senior bank executives and get certain privileges – as was the case with SVB - get their own rules?
But, still more important than the moral hazard issue here at the moment, is what happens when and if there is another 5 or 10 or 100 bank failures. With SVB Bank and Signature Bank, the FDIC invoked the banks as “systemically important” in order to provide the unlimited depositor protection that it is providing.
Can depositors assume that every bank going forward is going to be systemically important and that they’ll be made whole? Is there a number of banks that is hit when the “systemically important” designation can no longer work or a size of a bank? And, then what is the rule for credit unions and the NCUA?
Since this can only be changed by an act of Congress, and until such act occurs, we continue to recommend that depositors stay within applicable FDIC and NCUA limits.
A great primer on FDIC insurance can be found here.
The Federal Reserve has raised the Fed Funds target rate by 25 basis points to a target of 4.50% to 4.75%. Like the Fed’s six moves in 2022, today’s Fed move was very well telegraphed by Chairman Jay Powell. However, unlike each of the Fed’s five previously moves that were either 50 or 75 basis points, today’s move represents a raise in he target rate o only 25 basis points.
The Fed also states that it continues to see the need for “ongoing increases” in the Fed Funds rate, indicating that it may still not be near the end of its hiking cycle.
The prospect of slower moves had lead market participants to believe that the Fed’s hawkish tone is ending, with perhaps one further 25 basis point increase after this February 2023 move, and that the Fed would be already acting to lower rates by this time in 2024. That looks less likely now that the Fed is projecting ongoing increases.
The challenge here is quite evident. While some observers can manipulate inflation measurements to show that it has brought inflation under control, you would need to be living in a shell not to realize that sellers of most goods or services with pricing power can continue to gouge their customers.
Hence, the logic applied by many economists is that by its very nature, heightened inflation caused by long periods of tremendous liquidity can only be brought under control only by raising rates to the point where they reigning in the economy and perhaps even cause a recession.
If this logic holds true, several more Fed increases will be coming still. And, it is possible that the fact that the markets have yet to respond adversely to the Fed’s hawkishness will give the Fed further leeway to move further and longer than market participants are projecting.
