When I first started saving money, I put it in an account with a local credit union. While credit unions generally have higher interest rates than banks, to my dismay my credit union’s rates still weren’t very high. One day I found out that online banks were a thing. They offered much higher interest rates on savings, so I switched. I haven't looked back since.
Unfortunately, I started saving right when interest rates on bank accounts began to plummet. For the past few years, rates on checking and savings accounts have been so low that it really hasn’t been worth investigating whether I could earn more on my savings. Thankfully, interest rates are now slowly rising. They still aren’t amazing, but they’re a start. Is now a good time to switch banks for a higher interest rate? Here’s what you should consider:
Investigate What Interest Rates You Can Earn
If you’re wondering whether you can earn more on your savings, the first thing to do is investigate your options. Locally, you’ll probably do better at a credit union than a bank, but some banks do offer special accounts with higher interest rates. You can usually research rates by visiting each bank’s or credit union’s website, but if that fails, you can always give them a call.
Next do a quick search online to find online bank accounts that offer the highest interest rates. Usually the same few banks have the highest rates, but the one that offers the highest rate at any given point in time may change. When you find a few banks with high interest rates, research their websites and services to make sure that they'll be a good fit for you. Once you have a couple of candidates, move on to the next step.
- CIT Bank Premier High Yield Savings — 1.35% APY (annual percentage yield)
- Synchrony High Yield Savings — 1.30% APY
- Ally Bank — 1.25% APY
- Goldman Sachs Bank USA — 1.20% APY
- Barclays Online Savings — 1.20% APY
Calculate the Difference in Interest
Before you go ahead and switch bank accounts, first see how much more interest you’ll earn at the higher-interest-rate banks. Let’s say that you have $20,000 in savings and you’re currently earning 0.75-percent interest. At that rate, you’ll earn $150 in interest in one year. If you could instead get a rate of 1.2 percent, your interest would be $240 — an increase of $90.
Don’t Forget About Fees
While earning more interest is awesome, sometimes that comes at a cost. Make sure to compare the fees that your current bank charges with the fees that the new bank will charge you. If the new bank’s fees are lower than the amount of increased interest you’ll earn, you’ll probably want to make the change.
How Easy Is It to Switch Banks?
Fees and interest rates aside, the real reason many people never switch bank accounts is because it's a giant pain in the butt. If you want to completely switch banks, you’ll have to move all of your direct deposits over to the new bank. You’ll have to set up your new bank account with every vendor that you make online payments to. You’ll also have to notify all companies that automatically charge your bank account for recurring purchases.
For many, this is too much effort for only a few more dollars of interest. However, if you’ll earn a couple of hundred more each year, it may be worth it.
Why Not Just Switch Your Savings Account?
If you think switching banks is too much of a hassle, even for hundreds of dollars, don’t leave yet. Instead of switching both your checking and savings accounts to a new bank, you can just open a savings account there. This way, you can allow the bulk of your cash to sit in an account with a higher interest rate. You’ll generate a bit of extra cash and avoid the inconvenience of moving a checking account at the same time. The only minor hassle you’ll have to deal with is linking your checking and savings accounts so that you can make transfers between them. Thankfully, that’s a relatively simple process at most banks that pay higher interest rates.
So what are you waiting for? Check whether your bank’s interest rate is competitive and whether you should switch bank accounts.