There’s a war brewing among the nation’s top online banks. They’re battling it out behind the scenes, competing to offer savers the best interest rates.
As temperatures rose in June, things started heating up.
Synchrony Bank and Goldman Sachs increased savings rates before the June Federal Reserve meeting. After the central bank announced the year’s second interest rate hike several other banks followed suit.
A number of banks — including Ally, Barclays and American Express — have bumped up their savings rates more than once in recent months. Online-only bank DollarSavingsDirect, for example, has raised its rate three times since early April.
UFB Direct now offers the country’s highest yield. It raised its money market account rate to 1.41 percent APY before the September Federal Reserve meeting. The central bank didn’t touch its benchmark interest rate, but several banks increased their savings or MMA rates anyway.
To be clear, most banks have not raised deposit rates. Bankrate’s weekly national survey of banks and thrifts shows that the average yield on a savings account with a $10,000 deposit has remained unchanged at 0.25 percent since before the central bank last raised its benchmark rate.
Still, the yield battle among a dozen or so online banks may leave savers in a bind. Should you pick a bank and move on or wait for a deal with a higher yield? As you plot your next move, compare rates among the top savings accounts.
Chasing the best rate
With a third Fed rate hike expected before the end of the year, the game of one-upmanship has no clear end in sight.
“The returns paid on savings and CDs are a key point of competition among online banks and recent Fed interest rate increases have raised the bar,” says Greg McBride, CFA, Bankrate’s chief financial analyst. “There is real pressure to remain competitive if these banks want to retain the deposits they have and hope to bring in more.”
Putting your money in a high-yield savings account can help you build your emergency fund and hit short-term savings targets. But switching accounts just to grab the highest available yield could be fruitless in a rising rate environment.
“I would suggest to consumers not to go chasing the top interest rate bank right now,” says Kristin McFarland, a wealth adviser and certified financial planner professional at Darrow Wealth Management. “Banks are in competition with each other, so they’re not likely to let someone beat them by any meaningful measure for a sustained period of time.”
The case for having multiple savings accounts
Instead of closing a savings account each time you spot one with a better rate, you could have multiple accounts at different banks.
If there was another financial crisis, Vince Shorb, chief executive officer of the National Financial Educators Council, says you’d at least have a safety net.
But not everyone can handle juggling accounts at different banks.
“Some people can manage multiple accounts without a problem. Other people have a problem even managing one account,” Shorb says. “So I think it comes down to systems, organization, making sure you have all your financial records in one place.”
Making a tough call
Instead of holding out for better rates, consider choosing a savings account that currently meets your short-term financial needs.
“In terms of savings accounts, what I would suggest to one of our clients is to make the best decision for their personal situation based on the facts that they know today,” McFarland says.
Consider all of the terms and conditions associated with an account — not just the interest rate.
If you come across a savings account that seems like a better bargain, run the numbers to see if opening it makes sense. The difference in interest may not be that big, and if you’re trying to build wealth, you’ll have to start investing in CDs and other products.
If you’re not saving money on a regular basis — by either automating your savings or finding ways to cut back on spending — a higher interest rate won’t help much.
“It’s wonderful that banks are now offering higher interest rates,” says Allie Vered, director of America Saves, a campaign under the Consumer Federation of America. “But at the end of the day, you know what’s most important is that you’re (saving) and that you’re committed to it because it’s good for you and it gives you security and peace of mind.”