If one or more of your goals is tied to money you’re going to need to start (or increase) your savings, and having a high (or at least more competitive) interest rate can help you build your savings. According to gobankingrates.com, the average interest rate for savings accounts is .06 percent. Although the stock market (and other investments) have higher returns (on average), if you’re looking to finance your goal in the next few years you probably want a lower-risk, less volatile option to grow your money, and savings accounts can be great vehicles.
The bank we use for our main checking and one of our savings accounts is USAA (amazing customer service and mobile-friendly banking); however, their interest rates are not competitive and hover around the national average. A couple of years ago we decided to find a bank with a higher interest rate to help increase our savings. We used bankrate.com to find out which banks had the highest interest rates, selected a bank, contacted the bank directly to open a new account, and then transferred money from USAA (to CIT Bank). We did this while living overseas – it was a painless process and the added interest we receive was well worth it to us.
To put it in perspective (and without compounding interest), if you had $1000 earning .06% interest, you’d earn 60 cents in interest per year; whereas at a 1.00% interest rate you’d earn $10. That might not seem like much, but it adds up over time and is more impactful with compounding interest and a higher savings amount (i.e. $10,000 at .06% = $6 or 1.00% = $100). Let’s not forget about compounding interest, which combined with a higher interest rate can really help you realize your goal faster.
Here’s an example of compounding interest of .06% (national average) with a starting balance of $1000: Month 1: $1000
Month 2: $1000.05 ($1000 x .0006/12 = $.05)
Month 3: $1000.10 ($1000.05 x .0006/12)
Here’s an example of compounding interest of 1.00% with a starting balance of $1000:
Month 1: $1000
Month 2: $1008.33 ($1000 x .1/12 = $8.33)
Month 3: $1016.73 in month 3 ($1008.33 x .1/12)
After only three months you’ll have over 16 more dollars in the account with the 1% interest, which is like free money! If you’re looking to find a bank with a higher interest rate, here are the steps using bankrate.com.
Step 1: Go to bankrate.com
Step 2: “What are you looking for?” select “Savings/Checking”, select “Savings account” as the type, and “See all Money Market & Savings Accounts” for the product (if you have a significant amount of money to use in the account you can also select a $10K, $25K or $100K minimum, and click “Next.”
After you click on next, the site will bring you to the next screen which includes a list of accounts.
Step 4: Start reviewing the list. The items I pay attention to are the APY and the Rate (I want to select an account that doesn’t have an intro rate that only lasts for a short period of time. It’s not worth it to me to get .1% more if I then have to find a new bank and open a new account again in six months, but it may be worth it to you). I also look at the rating (stars below the name of the institution) and reviews which you can read if you click on the starts. Again, I’m interested in at least a four-star rating, specifically I’m interested in customer service, ease of opening account and accessing my money. You’ll need to figure out what’s important to you.
Once you find a bank with a higher interest rate and decent rating you can contact the bank directly (usually visiting their website will give you the information you need) to open an account. Best of luck to you!
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