The national average interest rate for savings accounts is 0.06%, according to Bankrate’s weekly survey of institutions. That’s such a low number that you might wonder if using a traditional savings account is worth it. The simple answer is probably, say the pros, but only for certain things (and make sure you have a high-yield savings account if you do); for most things, there are other options worth considering that will yield more growth.
Experts say your emergency fund (6-9 months worth of expenses) could be an important thing to put in a high-interest savings account, simply because it needs to be safe and easily accessible at all times. “Savings or emergency funds that you will need in the short term should be placed in an easily accessible account without penalties or tax consequences. Since the primary goal is accessibility and safety of capital, it’s normal to trade low interest for that,” certified financial planner Luis F. Rosa recently told MarketWatch Picks. Another time it might be a good idea to use a savings account is if you have a big goal — like, say, buying a house or taking a nice vacation — that you want to accomplish in less than a year.
Do not opt for an account paying 0.06%. “Online savings accounts offered by federally insured banks and credit unions offer the ultimate security, while providing penalty-free access to money when needed. They consistently pay better returns than most banks’ savings accounts and other cash-based investments such as money market funds,” says Greg McBride, chief financial analyst at Bankrate. Adds Chanelle Bessette, banking specialist at NerdWallet: Consumers should look for terms like “high yield” or “high interest” when researching new savings accounts to ensure they are getting the best rate available, says.
As of February 22, LendingClub is offering 0.65% interest with a minimum balance of $2,500, Goldman Sachs’ Marcus is offering 0.50% with no minimum balance, Alliant’s current APY is 0.55% with a minimum of $5 and Comenity Direct’s APY is 0.60% with a Minimum Balance of $100, to name a few.
McBride advises you to look for a savings account with a low minimum initial deposit and no permanent balance requirement, many of which he says are available with competitive returns, including Synchrony at 0.50% and no minimum balance and American Express National Bank with 0.50% and no minimum balance. Watch out for fees and other fine print to find the best savings account for you.
As for your other medium and long term goals, you might be better off with other avenues. CDs or conservative bond funds could be an option for relatively soon-to-be-achieving goals, says Cory Phillips, CRPC and financial adviser at Fort Pitt Capital Group: “You can probably beat the rate offered by your bank savings,” says Phillips . And for long-term goals like retirement, investing is the way to go. “Over longer time frames the market has some predictability, but in the short term it can be the big unknown,” says Phillips.