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Saturday, July 13, 2024

It’s National Savings Day! Here’s how to possibly earn hundreds more by switching savings accounts

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For over a year now, online banks have been increasing the interest rates on savings accounts in response to the Federal Reserve’s efforts to counter rising inflation by raising rates. However, if your money is only earning the national average or even less at other institutions, you might not be fully optimizing your savings. This goes against the essence of National Savings Day, especially when the leading savings yields are outpacing inflation.

The good news is that you have the potential to boost your annual earnings by hundreds of dollars simply by switching to a different savings account. Here’s how you can begin today.

1. Find your current savings yield

Simply having money in a savings account doesn’t guarantee that the Federal Reserve’s rate increases are benefiting you. However, with five Fed rate hikes this year, the disparity between a 0.01 percent annual percentage yield (APY) or the national average of 0.58 percent and the potential yield from a high-yield savings account is expanding.

You can effortlessly attain a 4.25 percent APY (or even higher) with an online bank’s savings account. This translates to a return over seven times greater than the national average over the course of a year, without any additional effort on your part.

To put this into perspective, if you have a median transaction account balance of $5,300 (as per the Fed’s data), you could accrue approximately $225 in interest over a year, assuming the 4.25 percent APY remains constant for the entire year, and you neither add nor withdraw funds. In contrast, the same balance would yield just 53 cents with a 0.01 percent APY and $30.74 with the national average of 0.58 percent APY during the same period.

So, take a moment to review your bank statement and determine your current APY.

For a more precise estimate of potential earnings, you can utilize a simple savings calculator to compare the increased earnings achievable with a competitive high-yield savings account versus savings accounts at major banks.

2. Research the highest rates available

Examine interest rates to identify the most suitable account for your needs.

In addition to the interest rate, take into account the following factors:

  1. Minimum initial deposit requirement
  2. Available methods for transferring, depositing, or withdrawing funds, such as ATM card access or mobile check deposits
  3. Presence of a monthly service fee

Keep in mind that savings rates often fluctuate, so opting for a competitive yield involves more than just selecting the highest rate available today, as it could change in the near future.

3. Open a new savings account

Opening an account with an online bank is a fast and convenient process. Many online banks claim that it can be done in just a matter of minutes. Typically, you will find your interest payments detailed on your monthly statement, allowing you to witness your balance steadily increasing, thanks to the magic of compound interest, where your interest earns more interest over time.

An alternative approach to securing higher interest rates for your savings accounts is to explore credit unions. Numerous top-notch credit unions provide appealing yields on savings accounts and share certificates.

Other ways to boost your payout

Savings accounts aren’t the sole means of generating additional income to help offset the impact of inflation in this era of rising interest rates.

Here are some alternative avenues to potentially increase your earnings or secure a higher yield:

  1. Bank Account Bonus: Certain banks provide bonuses for opening a new account. Typically, these incentives are more readily available for opening a new checking account at a bank where you aren’t currently a customer. Given that people tend to maintain the same checking account for an average of 17 years, it could be worthwhile to reassess your checking relationship.
  2. Certificates of Deposit (CDs): A one-year CD at a competitive online bank usually offers a higher annual percentage yield (APY) compared to the same bank’s savings account. This option presents an opportunity to earn a superior fixed APY; however, you must be comfortable with committing your funds for the entire duration of the CD term.

Bottom line

Capitalizing on the Federal Reserve’s recent 11 rate hikes necessitates opting for a high-yield savings account that offers a yield exceeding 4 percent. A survey released earlier this year revealed that only 16 percent of individuals were not earning any interest on their short-term savings. While you don’t necessarily have to aim for the highest annual percentage yield (APY), in the present interest rate climate, striving for a minimum yield of 4.25 percent APY should be your objective.

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