Here’s What Today’s Average Savings Account Rates Are (Oct. 19)
Note that APYs listed are current as of October 19, 2020. The percentage constantly fluctuates as the Fed rate goes up and down.
If your money is sitting in a standard savings account, chances are it’s not growing much: The national average interest rate on savings accounts is a scant 0.05% APY, as of October 19, 2020. That’s according to the Federal Deposit Insurance Corporation (FDIC), which updates the average rates every week.
That means, if you let a $10,000 deposit sit in an average savings account for a year, you’d earn a mere $5 in interest. Over 10 years, your savings would grow just $50. You’ve got to find a way to make your money work harder for you.
Where should you stash your savings?
Typically, the traditional “big banks” (think: Bank of America, Chase and Wells Fargo) offer the lowest interest rates, close to 0.01%. Back to our example above, a $10,000 deposit would earn just $1 in interest over the course of a year if it sat in one of these accounts, while a $100,000 deposit would yield $10.
If you keep your money in a low-earning savings account, you could lose out on hundreds or even thousands of dollars over time.
You’ll start to see much more attractive rates with savings accounts offered at online banks, which are just as legitimate (and FDIC-insured) as the big banks. The reason internet banks can offer much better rates than their brick-and-mortar counterparts is because they don’t have to spend money building thousands of branches and hiring people to fill them. With internet banks, though, it’ll normally take a couple of days to access your money, whereas you can get instant access with the big banks and you have multiple ATM options.
Up until Covid-19 hit, internet banks were offering interest rates between 1 and 2%. That’s 20 to 40 times higher than the national average — and 100 to 200 times higher than the rates offered at traditional banks.
The pandemic has driven interest rates down significantly, but you can still find some savings accounts out there with appetizing yields, especially compared to the national average of 0.05%.
There’s Varo, an all-mobile, San Francisco-based national bank, which is offering a rate of 0.81% for all customers, with the option of earning up to 2.80%. In order to earn the higher rate, you have to open a checking account and meet three requirements in the same calendar month: make at least five Varo Visa® Debit Card purchases, receive total direct deposits of $1,000 or more and keep a savings account balance no higher than $10,000 (while there’s a maximum balance requirement, there’s no minimum balance).
If you qualify for the 2.8% APY, you’d be earning 56 times more interest than you would if you used an average savings account offering 0.05% APY. And you’d earn about 280 times more than if you used a traditional “big bank” offering 0.01% APY.
There’s also TAB Bank and Synchrony, which are both currently offering 0.65% APY, or 13 times the national average. Ally and Marcus by Goldman Sachs (the consumer arm of the storied investment bank) are offering slightly less: 0.60% APY.
You can also consider putting your savings in a certificate of deposit (CD), a type of savings account that offers a higher interest rate and fixed date of withdrawal. While standard savings accounts let you put money in and take it out at will, CDs work a little differently: You deposit a fixed sum for a fixed term and then enjoy relatively high interest rates.
Before the pandemic, rates on CDs were close to 2% or more. Now, they’re lower: Marcus by Goldman Sachs and Ally are both offering 0.65% APY on 12-month CDs and Discover is offering 0.60% for the same term.
Remember that you’ll have less flexibility with a CD: With these accounts, you agree to let your money sit for a set number of months or years — and if you withdraw your money before the term is up, you’ll owe a fee. So if you think you’ll ever need to access this cash immediately, this type of account may not be the right fit for you.
Keep in mind that high-yield savings accounts and CDs are good options for your emergency fund money or any short-term savings goals. As for money for your long-term goals, like retirement, you’ll want to aim for higher returns by investing in the stock market via retirement savings accounts like a 401(k) or IRA. Or, you can look into automated investing platforms known as robo-advisors, which will build a model portfolio for you depending on your age and risk profile and then automatically rebalance it over time.
But if you’re looking to earn more interest on the money that’s just sitting in your savings account, look into high-yield savings accounts and CDs
See average savings account rates from previous weeks:
Read next: How to Build an Emergency Fund, in 4 Steps