Here’s What Today’s Average Savings Account Rates Are (Oct. 26)
Note that APYs listed are current as of October 26, 2020. The percentage constantly fluctuates as the Fed rate goes up and down.
The national average interest rate on savings accounts hasn’t budged over the past few weeks. It remains at a scant 0.05% APY, as of October 26, 2020. That’s according to the Federal Deposit Insurance Corporation (FDIC), which updates the average rates every week.
That means that if you have any money sitting in a standard savings account, it’s likely earning next to nothing in interest. Let’s run some numbers.
Say you have $10,000 sitting in a savings account that earns 0.05%. After one year, you’d earn a mere $5 in interest. Over 10 years, your savings would grow just $50. Even if you have a larger balance, say $100,000, it would only grow $50 after one year and $500 after 10 years.
The bottom line: 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 over the same time period.
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 2.80% 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.
Here are some other attractive options:
- TAB Bank is offering 0.65% APY with no minimum deposit
- Synchrony is offering 0.60% APY with no minimum deposit
- Marcus by Goldman Sachs is offering 0.60% APY with no minimum deposit
You can also consider putting your savings in a certificate of deposit (CD), a type of savings account that offers a higher interest rate than the national average, but a 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 enjoy relatively high interest rates, but can’t touch your money without owing a fee until the term is up. Typically, the longer the term, the higher the interest rate.
Before the pandemic, rates on CDs were close to 2% or more. Now, they’re lower, but here are some good options:
- Marcus by Goldman Sachs is offering 0.65% APY on a 12-month term (the minimum initial deposit is $500)
- Discover is offering 0.60% APY on a 12-month term, 0.65% on a 24-month term and 0.80% on a five-year term (the minimum initial deposit is $2,500)
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