Make the right call on a bank account APY and rake in more savings
If you’re taking a lax approach to bank account yields, you’re leaving money on the table – likely more than you think.
That’s the takeaway from a new DepositAccounts study showing how much consumers can save by taking the time to compare annual percentage yields on bank checking and savings accounts.
According to the report, “shopping for the best APY on a checking account can boost your balance by as much as 5.1% in a year and 64.5% in 10 years.” Additionally, with balances of $1,000 to $25,000, the difference between the lowest and highest checking account APY can result in an additional $51 to $965 in a year and $646 to $11,685 in 10 years, the study reports.
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Too Often, Bank Account Consumers Just Don’t Care
Despite the prospect of significant bank account interest gains, only 45% of U.S. bank customers actually compare bank account yields. Unfortunately, financial institutions are banking on APY shopper neglect.
“Interest rates can vary substantially, especially in today’s interest rate environment in which the Fed has raised its benchmark rate to its highest level in more than a decade,” says DepositAccounts founder Ken Tumin. “Banks make money off of customers who don’t monitor their interest rates.”
One big problem is that bank checking accounts don’t offer much in the way of interest, even though there’s cash value attached to finding a checking account with an incrementally better APY.
“Additionally, many people choose to hold the bulk of their cash savings in other types of accounts like a High Yield Savings account or a CD for higher yield,” said Origin certified financial planner Heather Comella. “They tend to maintain a cushion in their checking account but the interest on that cushion is immaterial.”
Even more unfortunate, most banking consumers don’t put much effort into finding checking accounts that earn high APYs, as they don’t realize how much interest they could accrue.
“Several online banks now pay north of 3% APY on checking account balances,” said Forbes Advisor senior banking analyst Michael Benninger. “That’s a far better rate than most brick-and-mortar banks pay on savings accounts.”
Another key consideration is convenience.
“People often bank close to their home or place of business to be able to stop in as needed,” Comella said. “People also develop relationships with local bank tellers or lenders and therefore prefer to keep their banking with those individuals they trust. Too often, these considerations outweigh the minimal increase in APY one might seek for their checking assets.”
Tips for More Robust APY Earnings
Flip the switch on lax APY comparison shopping with these “best banking account” tips.
Know where to look. An online bank typically pays higher rates for checking and savings accounts than a brick-and-mortar location. “Many financial and banking platforms offer pages that compare savings rates at different institutions across the country,” Comella said. “This can be a great starting point, then you can look at the institution’s website to better understand the account fees, interest tiers, or limitations.”
Think small. If you prefer a physical, local bank, “credit unions often pay higher interest rates than the large banking institutions,” Comella said.
Check the fine print. The biggest mistake people make when shopping for an interest-bearing bank account is to skip reading the fine print.
“Many banks advertise high APYs on checking and savings balances, but those rates often only apply to a portion of your overall balance,” Benninger said.
For example, if a bank currently advertises APYs ranging from 3% to 5% on its checking accounts those rates may only apply to the first $10,000 in the account. “Any amount that exceeds that threshold might earn just 0.2% APY,” Bennington noted. “By reading the fine print and terms of service before applying for a new account, it’s less likely you’ll be caught off guard by reduced rates.”
Go online. Digital banking is another good option for APY hunters.
“Online banks have a lower operating cost structure and thus are able to offer higher rates than brick-and-mortar rates,” said MaxMyInterest chief executive officer Gary Zimmerman. “Still, you might want to keep your primary banking relationship at a brick-and-mortar bank.”
“That way, you have a local branch where you can withdraw or deposit cash while keeping your extra funds in savings accounts at online banks, where they can earn more money,” Zimmerman noted.
