Do you have a savings account with one of the big traditional banks? Then the chances are they are earning a pitiful rate of interest and come with lots of strict conditions. Did you know switching to an online competitor bank could earn you over 10 times the national average interest rate? Now is an important time to review your finances and find a better savings account interest rate. We’ll take a look at reasons why it can be beneficial to switch savings account.
Why Have A Savings Account?
First off, if you don’t already have a savings account we’d recommend you open one. Everybody requires some accessible cash to be held for security. Building up an emergency fund is there in case of the unexpected such as job loss or medical bills. It gives peace of mind that you can meet an unexpected expense without having to resort to borrowing.
It’s also important to ensure you earn a good rate of interest on your savings. Cash deposited with banks earns compound interest. This means you earn interest payments on both your initial deposit and all the interest that it earns.
Unlike other assets like stocks, cash offers stability and security. Although it is susceptible to inflation, which is the rise in prices over time. Inflation erodes the spending power of cash. When inflation rises, a dollar will buy less tomorrow than it does today.
Interest paid on your cash savings helps to hedge against the rise in inflation. This can protect the spending power of your cash. Although presently the rate of inflation is higher than any interest rates available on savings accounts. That’s why it’s more important currently to ensure you have the best savings account interest rate.
Why Switch Savings Account?
Many of the large, traditional banks do not offer the best rates of interest to their customers. These institutions have recognisable brand names and often still operate regular bricks and mortar branches. This makes them very accessible for many customers.
But this also means they don’t have to be as competitive as other smaller banks to attract customers. They can often rely on brand name recognition to attract people. This can result in lower quality products and services. The average savings account interest rate is currently just 0.06%. But many banks offer a lot better than this. There are even checking accounts that pay interest higher than this.
Many smaller or online only banks offer more competitive products including higher savings account interest rates. This is because they have to work harder to win customers away from the big banks.
Some of them are ethical and community banks that do not operate for profit. They prefer to put the needs of the customer first rather than making as much money as possible.
Plus banks that operate solely online have leaner businesses and lower operational costs. This means they can pass some of these cost savings onto the customer. Banks with lots of branches all over the country have higher costs to service these.
It is not only higher interest rates that are appealing when switching accounts. Some of the reasons you might want to switch savings account include;
- Provides a source of passive interest income
- Earn a higher savings interest rate
- Reduce minimum deposits or balance requirements
- No withdrawal fees
- Greater accessibility
- Better customer service
- FDIC insured
Savings Interest Rates
There are many different types of savings account available, each with differing advantages and disadvantages. These include high yield savings accounts, certificate of deposit accounts and even interest paying checking accounts. One of the main reasons to switch savings account is to receive a higher rate of savings interest.
Traditional savings accounts often have the lowest rates of interest. High yield accounts are commonly found online and have much higher rates. You can usually earn better rates by locking cash away for a set period. This is commonly found with Certificate of Deposit (CD) accounts. Fixed terms may vary from 1 month to 5 years.
According to the FDIC, the current average interest rate on savings accounts is just 0.06%. If your bank is paying rates as low as this then it might be time to switch savings account. The table below shows the current average interest rates available on a range of account types.
It also shows what some large and alternative banks are offering as an example. Note the difference between the likes of Wells Fargo and Quontic. The latter pays more than 10 times the interest on their savings account.
The rates referenced below are published as of April 2022 and are intended as an example to give readers an idea of what is available. They are subject to change. Compare savings products easily by using an online savings marketplace like SaveBetter by Raisin or view our list of the best online savings accounts interest rates.
Switching Savings Conclusion
It’s important to switch savings account to ensure you are getting the best return on your cash. Interest paid on cash savings is compounded meaning it is paid on your deposit and all the interest it earns. This allows returns to accumulate quicker.
Most large banks pay only very low interest rates on savings products. The current average US interest rate on savings is just 0.06%! But many online banks offer much more competitive rates than this.
It is not just higher interest rates. Many digital savings accounts have lower minimum deposits and balance requirements. Plus lower fees or even no fees at all. Allowing you to make much more from your cash.
It is worth shopping around for a better deal and switch savings account. There are even online savings marketplaces that take all the time and effort out of searching for savings accounts.
Take SaveBetter for instance, an online platform operated by fintech company Raisin. It provides a wide choice of top rated savings accounts from quality digital banks. Savings accounts from multiple providers can be opened and operated from within the platform. Offering great convenience, security and ease of access.
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- What is SaveBetter savings marketplace?
- What are the different types of savings accounts?
- The best apps for managing your money.
- How to save money at home.