Here’s What Today’s Average Savings Account Rates Are (Nov. 2)
Note that APYs listed are current as of November 2, 2020. The percentage constantly fluctuates as the Fed rate goes up and down.
For the past 10 weeks, the national average interest rate on savings accounts has remained at a meager 0.05% APY. That’s according to the Federal Deposit Insurance Corporation (FDIC), which updates the average rates every week.
The rate was nearly double, 0.09%, at the beginning of 2020, and started to fall in early May, when it dropped to 0.07%.
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.
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%.
While rates at most internet banks are below 1%, there’s one online bank that’s offering some customers an extremely attractive interest rate of 2.80%: Varo, an all-mobile, San Francisco-based national bank.
Varo is offering 0.81% APY for all customers, but you can earn the higher, 2.80% if you open a checking account with Varo and meet three requirements in the same calendar month:
- You have to make at least five purchases with the Varo Visa® Debit Card.
- You have to receive direct deposits (payroll or government direct deposits) totaling at least $1,000 into the Varo Bank Account or Savings Account.
- You have to keep a savings account balance no higher than $10,000 — yes, that means there’s a maximum balance requirement, but no minimum balance. If your daily savings account balance is above $10,000, you will earn 0.81% APY on the entire savings account balance, but you can re-qualify for the higher rate the day after you bring your balance to $10,000 or less.
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.
Back to our example above: If you had $10,000 sitting in a Varo savings account earning 2.8%, after one year, your balance would grow $280 (instead of just $5 with an account earning 0.05%). Over 10 years, your $10,000 balance would grow to $13,180.48, more than $3,000 (compared to $50 with a 0.05% rate).
Read more about Varo HERE. And check out these other attractive savings account 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
- CIT Bank is offering 0.50% APY if you have a balance of at least $25,000 OR make at least one monthly deposit of $100
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 and 0.70% on a five-year term (the minimum initial deposit is $2,500)
Remember that you’ll have less flexibility if you go this route: With CDs, 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