I remember opening up my first savings account (albeit with a meager $25) when I was a teenager in the 1970s. What a cool feeling to see my money grow every time I got my interest statement in the mail.
Back then I could rely on earning about eight percent annual interest.
How I long for those days.
The good news, is within the last year, the Fed has increased interest rates, which should spell good news to all savers.
Yet for the millions of people who have placed their money in savings accounts with the four largest banks… Bank of America, Wells Fargo, Chase and Citigroup, it’s like nothing ever happened.
I’m not here to bash the big banks, or even your local community banks or credit unions who also have been slow to adjust their savings rates.
I have nothing but good things to say about my big bank when it comes to the services they offer me, from direct deposit for my paycheck, to online banking and ATM privileges. But the miniscule 0.01 percent interest rate they have been offering since about the recession, with no real substantial increase since, just isn’t right.
Knowing I had options, I looked into depositing my money in an online bank about two years ago. Like most, I was skeptical.
Are these legitimate banks? Is my money protected? The answer to both is yes.
In the case of Ally Bank, the one I chose after some research, my savings is protected by the FDIC (Federal Deposit Insurance Corporation) up to $250,000, admittedly far more than what I have.
Ally was also not some fly by night, never heard of them and never will again business. They’ve been around awhile and have a physical corporate office. And they’re not alone. Do a search or go to bankrate.com to see a list of all the reputable online banks and the rates they offer. It will blow your mind.
So why were they able to offer me, what now is almost two full percentage points of a higher rate than my local bank?
Part of it, I suppose, is the fact that because they don’t have brick and mortar offices, and the costs of running those, it allows them to cut costs. It’s the same way that insurance companies that don’t have local agents can often offer lower costs on policies.
Of course, there are drawbacks. If you’re one who would rather walk into an office and speak directly to a human instead of over the phone or online, you’re probably someone who would rather pay more, but have that better customer service. And if that’s your preference, good for you.
But did I gloss over the part about almost two full percentage points higher?
Seriously, when I moved my savings rate from that big bank to Ally two years ago, it went from 0.01 percent to 0.75 percent immediately. This past year, while the big bank has not nudged at all, my Ally rate, as of this writing is at 1.90 percent. It seems every month I get an email saying they have raised the rates again. Other online banks are reporting rates topping two percent.
At a time when we should all have a six-month or better emergency fund, wouldn’t it be nice to make some money while you park it?
Although Ally and many other online banks are full-service, in that they offer free checking, ATM withdrawals (in partnership with local banks or kiosks), loans, etc. I was happy with my local bank for all of that, and simply wanted the better return on my savings.
And just because everything is done online, doesn’t mean it had to be difficult. It was as simple as creating an account with the online bank, and giving them the routing number to my account with my local bank. I then did the same on the other end: I gave my local bank the routing number for the online bank.
Here’s how it works: If I want to add money to my savings account, I simply do it directly on Ally’s website. If I need to withdraw money from savings, I can have it deposited directly into my local bank’s checking account. It usually takes two business days. Once it gets in there, I can either write checks or withdraw from the ATM.
Who knows where interest rates on savings accounts will head. I doubt we’ll ever experience again the days of double-digit returns, but in the meantime, I hope this column might open your eyes to what is available today so that you can have more to hold onto.
This writer wants to hear from you. If you have questions on anything you read or have a story to tell, contact Mark at firstname.lastname@example.org.