Not all savings accounts are created equal — and most Americans have the wrong ones.
Nearly 70% of Americans have savings accounts paying less than 2% interest, according to a survey of 1,000 consumers conducted by personal-finance website Bankrate. One in five consumers earns less than 1% annual percentage yield (APY) on the short-term savings, and nearly one in four people said their savings account didn’t earn interest at all.
Meanwhile, only 14% of consumers said their savings accounts earned more than 2% APY.
The national average interest rate for savings accounts is 0.09%, according to the Federal Deposit Insurance Corp. For money market accounts, the national average rate is slightly higher at 0.18%.
But finding a savings account that can earn more than 2% interest isn’t a difficult endeavor. In fact, it could be as simple as opening an online savings account.
“You can and should be earning a competitive return on your savings,” said Greg McBride, chief financial analyst at Bankrate.
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Bankrate surveyed 57 financial institutions to inquire about the interest rates across 60 federally-insured online savings and money market accounts.
The vast majority of these account (87%) paid at least 2% APY, with the average interest rate being 2.18%, and nearly all of them (92%) were available nationwide.
Moving your money into an account that earns more interest will pay off. If you put $10,000 into a savings account that earned 2.25% APY, as some online savings accounts from institutions such as Goldman Sachs’ GS, -1.82% and Synchrony SYF, -1.39% do, you would earn $1,327 over 5 years.
Comparatively, a consumer who puts $10,000 into a savings account earning the national average rate of 0.09% would earn only $45 in interest over 5 years.
The good news: There’s not a significant barrier to entry when it comes to these accounts. More than half of these online accounts had a minimum opening deposit of $100 of less, and 35% had no minimum deposit requirements.
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Moreover, numerous companies have begun offering new money and banking accounts designed to earn higher interest than the standard interest rate at larger banks, including wireless company T-Mobile TMUS, -0.45% robo advisor Wealthfront and student loan firm SoFi.
One reason people are missing out on higher interest rates: Bank accounts are “sticky.” Over a third of consumers told Bankrate they hadn’t opened an online account because they didn’t want to leave their current bank or because they wanted access to a local branch. One in four people said they were concerned about the security of the accounts.
However, online savings accounts can easily be linked to another account at a brick-and-mortar bank or credit union. And so long as the account is insured by the FDIC or the National Credit Union Share Insurance Fund, the money will be protected.