Last week we talked about the basics of savings and why having a savings account is a very important part of your financial plan. They have lots of purposes including being a rainy day fund, retirement fund (just one of many you should have), or a special occasion fund such as a wedding or vacation. Whatever the purpose is, a savings account is a type of financial investment, as you earn interest on the money deposited. So why not make it the best possible savings account it can be?
Brick and Mortar vs Online Banks
I've had a lot of different savings accounts in my life. What I've learned is that the amount of interest you earn can differ vastly depending on which financial institution you go with. Online banks and financial institutions tend to pay higher interests rates as they have lower overhead (ex. paying costs associated with physical bank locations) than brick and mortar banks. Here are a few of the top interest earning savings accounts for both types of financial institutions. You will notice I've included the Annual Percentage Yield (APY) next to each financial institution. APY is the effective annual rate of return, taking into account the effect of compounding interest. The percentage assumes that the funds will remain in the investment vehicle (i.e. savings account) for a full 365 days. This is different from the Annual Percentage Rate (APR), which is which is used for loans (ex. credit cards) rather than investments.
Top Online Banks
1) SFGI Direct (www.sfgidirect.com) - 1.06% APY
2) Goldman Sachs (www.gsbank.com) - 1.05% APY
3) Synchrony (www.synchronybank.com) - 1.05% APY
4) Barclays (www.banking.barclaysus.com) - 1% APY
5) Ally (www.ally.com) - 1% APY
Top Brick and Mortar Banks
1) Bank of America (www.bankofamerica.com) - .01% APY
2) Chase (www.chase.com) - .01% APY
3) Comerica (www.comerica.com) - .01% APY
As you see, online banks typically offer higher interest rates. However, make sure you look at all rules of the account as each institution may have different APY's based on your state, minimum deposits, rules about accessing your money, and monthly maintenance fees. When looking for a financial institution to invest your money with, make sure you do your research and find the best fit for your financial goals!