Making the decision to switch banks for a higher interest rate can be a decision worth $40,000. Even more or less, depending on your situation, of course. Before we recommend wonderful online banking alternatives, let’s run two quick hypotheticals.
If you avoided saving $100/month in a savings account with the national average interest rate of 0.06% per year and instead saved $100/month in an account with a 1.0% rate, you’d earn an extra $18,000 in interest over the next 50 years.
If you made the same choice but with $200/month, the added earnings of saving in the high-rate account would be almost $40,000. The scenarios are illustrated in the graph below.
How can you improve your financial life in these ways?
Switch banks. And it isn’t as complicated or enormous a decision as it may sound. You’ll still be putting money in a savings account monthly or whenever possible, but you’ll log in to a new website to check your balance and you’ll earn a higher interest rate. It’s actually that simple.
In growing numbers, millennials are shunning the use of checks, cash, and other physical means of transacting. The abandonment of an enormous, corporate, low-interest bank like Bank of America often means the loss of a nearby physical location. At this point in the article, you should stop and ask yourself: ‘When was the last time I went to the brick-and-mortar branch of a bank? Why?’
The new-kid-on-the-block banks often have no physical branches and no branded ATMs. They pass on the profits from those cost-cutting measures to their customers, the savers, us. Often, they will allow you to use the ATM of (many) other banks a handful of times each month and will reimburse your ATM fee.
When the potential gains are in the tens of thousands of dollars over your lifetime, it’s not difficult to convince you that switching banks can be beneficial. Though these aren’t the kind of enormous returns seen from investing over decades, they are still substantial. So, where should you go? What are the pros and cons of the 21st century (mostly online) banks?
We’ve compiled for you a list of banks that offer interest rates of around 1.0%/year, and there are many of them. We are ignoring banks with substantial minimum balance requirements (initial or ongoing) or monthly maintenance fees.
Where to Go:
Interest rates and services offered by the following institutions are accurate as of July 10th, 2016
Ally: shines with a 1.0% interest rate, 24-hour customer service over the phone, and even customer service via Twitter and instant messaging. They’ve got a comprehensive and easy-to-use mobile app, no minimum account balance requirement, nor monthly fees. Ally offers the option of syncing your savings account to a checking account for overdraft protection and is widely, positively reviewed online.
As for ATMs and gettin’ that cold, hard cash, Ally will reimburse up to $10 at the end of each statement cycle for fees charged at other ATMs nationwide. Alternatively, you can use any Allpoint ATMs for no fee at all. “Allpoint is the largest nationwide, no-fee ATM network with over 43,000 ATMs conveniently placed in locations such as CVS, Walgreens, Target, convenience stores and other regional retailers” –quoted from Ally’s website.
Barclays: provides an online savings account that offers an annual rate of 1.0%. There is no minimum balance requirement and no monthly maintenance fee. You can deposit checks with your cell phone’s camera, coordinate direct deposit from your employer, transfer money to and from other banks, etc..
If you don’t need the money short-term (which is kind of the whole point of a savings account) Barclays offers a Dream Account. The account boasts a 1.05% annual rate: If you make deposits each month for 6 months (maximum $1,000/month, no minimum), you’ll earn a 2.5% bonus on your interest earned during that time. If you make no withdrawals for six months, you will earn a second 2.5% bonus. Pretty good!
Synchrony: boasts a high interest rate of 1.05%, no monthly maintenance fees or account minimums, and great ATM access. You can use the ATMs of Plus, NYCE, and Star for free and Synchrony will reimburse you $5 each month for the use of ATMs that are out-of-network. The account, of course, comes with an ATM card.
One downside of using Synchrony is their lack of a mobile app. That bugs us. However, you can use the internet browser on your phone to navigate to Synchrony’s mobile site. Then, you can check balances, deposit checks using your cell phone’s camera, etc. If you’re like us, you might use Mint to look at all of your accounts at once, in one place, either as summaries or in depth. That would solve the (admittedly tiny) problem of Synchrony’s lack of an app.
Capital One 360: offers a high (but not industry-leading) APY of 0.75% but boasts an impressive (and often sorely needed) feature. You can split your money into different groups, or buckets: up to 25. If you’re saving for several different goals and need a little organizational boost when it comes to keeping track of your money in a simple way, this is a seriously wonderful option. The downside is, of course, the lower interest rate.
We must say that being able to sort your money into buckets like you would documents into folders or cash into envelopes can making saving much simpler, much more exciting, and therefore much more effective. High interest rates are only good for individuals who actually save. If you will be more motivated to save when you can organize your money into buckets, then, by all means, take the lower rate and save more each month. This is a feature we have dreamed of having for about 6 years now but have only just discovered it!
Capital One has physical locations that include ATMs (2,000 ATMs, to be specific) and Capital One 360 account holders gain access to Allpoint ATMs, just as Ally account holders do. There are no monthly fees and no account minimums. You can deposit checks from your couch by using their easy mobile app.
Perhaps the scale-tipping reason that Capital One 360 made the list is that it comes recommended by Mr. Money Mustache, an idol of the WLI team. He adds, “My favorite feature, however, is the ability to link the Capital One 360 checking account to three other bank accounts so you can shuffle your money around electronically at no cost.”
This list is not exhaustive. Remember:
- Withdrawals from a savings account are limited to 6 per month by Big Brother (the U.S. government), though this doesn’t apply to ATM withdrawals.
3. Financially speaking, saving in a savings account is not a viable long-term alternative to investing. Savings accounts are stable, safe, and reliable in ways that investments are not, but stock market investments provide returns far greater than those of savings accounts over long periods of time.
4. Banks can change their interest rates: they are not guaranteed for life. However, approaching 1.0%/year is an enormous advantage over anything close to the national average of 0.06%.
That’s it! Good luck in your quest to change banks for a higher rate. Let us know what you think, share your experience in the comment section below, or email us!
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