Most Americans are Earning Very Little on Their Savings. Can Moving Accounts Help?
According to recent data, the average interest rate on traditional savings accounts is a meager 0.6%. That means for every $10,000 sitting in savings, you’re only earning $60 per year! Clearly, it’s high time for savvy savers to explore new strategies to maximize interest earnings.
The good news is with a bit of research and planning; you can likely find much better interest rates by moving your accounts.
Why Traditional Savings Accounts Yield Low Interest
Traditional banks can’t afford to offer meaningful interest rates on standard savings accounts because of how they operate. Banks use the money in savings accounts to fund loans and mortgages for other customers.
The revenue they earn on those loans is their main source of profits. To attract more depositors, banks do offer some interest – but only a tiny fraction of what they earn on loans.
Federal Reserve rate cuts since the last recession have also pushed savings interest rates lower. When the Fed lowers rates, banks lower the interest they pay out accordingly. While disappointing for savers, low rates do encourage borrowing and investing, which supports overall economic growth.
The Potential of Moving Accounts
While old-school savings accounts may offer next-to-nothing, by moving some funds to different types of accounts, you can likely earn much higher interest rates.
One good option is an online high-yield savings account. The best high-yield accounts offer rates 100x traditional savings accounts or higher! Even an interest rate of 1% would mean $100 per year on $10,000 saved – which is still better than $60.
Certificates of deposit (CDs) also pay more interest if you lock up funds for a set period of time, often 1-5 years. Average 1-year CD rates are 1.99% now.
Benefits and Risks of Moving Accounts
Boosting your interest earnings can really add up over time. Let’s say you moved $10,000 from a 0.60% rate to a 1% high-yield account. In 5 years, you’d earn $100 in interest instead of $60 by simply moving accounts to earn more!
Some potential downsides do exist, though. High-yield and money market accounts often limit withdrawals to 6 per month. CDs charge early withdrawal fees if you remove funds before maturity. Make sure to understand any restrictions before moving significant savings.
Additionally, rates on high-yield and money market accounts can fluctuate, so they may decrease in the future. Do your homework to find stable financial institutions that consistently offer highly competitive interest rates.
How to Determine If Moving Accounts is Right for You
Moving savings accounts is a big decision. It pays to really think it through.
Start by asking yourself:
- What are your savings goals?
- Do you need the money soon for a house, vacation, or something else?
- Or is this long-term savings you won’t touch for years?
Also, look at how much you currently have saved up. Even small increases in interest rates can add up over time, especially on larger balances. A few extra percentage points could make a difference in your bottom line.
Take some time to analyze all the angles.
Calculate exactly how much extra interest income you could earn annually by moving accounts. Weigh that benefit against any potential drawbacks based on your needs.
For most savers, the rewards of earning higher interest will outweigh any minor inconveniences. But carefully weigh the choice for your situation.
Steps to Move Your Savings to a New Account
Ready to move your funds and upgrade your interest earnings? Here is a step-by-step guide.
- Research your options. Compare interest rates, fees, and account restrictions across banks and credit unions. Look for the highest yields with the least hassles.
- Open a new account. You can handle this quickly and easily online in most cases. Have your ID, social security, and initial deposit amount ready.
- Set up new account features. Log in online to set your login, link accounts, establish auto-save transfers, etc. Get your new high-yield account configured just how you like.
- Transfer funds. Initiate the transfer through your new institution. You can move part or all of your savings balance. Transfers are usually complete within a few business days.
- Inform your old bank. Let them know you’ve moved the funds as a courtesy. You could choose to close your old account if you transferred the full balance.
With interest rates on traditional accounts so low, it pays to be proactive and explore options. Whether you opt for a high-yield online savings account, CD, money market, or other vehicle, you can potentially earn exponentially more interest simply by moving your funds.
A few extra percentage points of interest can really add up over time, thanks to the power of compounding. Don’t leave your savings trapped earning close to zero – look into moving accounts today.
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