Interest on savings accounts has been well below 1 percent for many years, but it is possible to find banks that have higher than the average rate and even more than 1 percent at times. Banks may have certain requirements for high-interest savings accounts, including minimum balances. Savings accounts offer security, regardless of rates. Your money stays protected when in an FDIC-insured bank for up to $250,000. You can earn more on the stock market, but also risk losses.
Savings accounts averaged a low of 0.06 percent in October 2013, according to CNN Money. Some banks have savings accounts for as little as 0.01 percent interest, while others get closer to the 1-percent annual interest rate. Online banks typically offer better interest rates because they don't have the overhead costs of physical banks. Banks with a 1-percent interest savings account or more might require a minimum deposit of $10,000 or higher.
You might find different rates at banks and credit unions, depending on the type of financial institution and the account. Credit unions could offer better rates at times. However, you must be connected to a specific group to join certain credit unions. For example, state employees have access to state employee credit unions. Interest on savings accounts for certain postal or police credit unions can range from 2 percent to 2.5 percent. Credit unions belong to nonprofit organizations. They typically offer loans at lower interest, which might reflect on lower interest gained for their savings accounts.
Typical savings accounts with low interest rates have no or low minimum balances. The banks might use the money as loans to other customers and pay your account a tiny percentage of that rate. Such small percentages in interest rates might not seem like much, but the difference between a 0.06 APY and a 1-percent rate can add up over time. Say you put $1,000 in a savings account with $100 monthly contributions. You could earn $200 after two years with a 1.0 APY compared with a 0.06 APY. If you have $10,000 in a savings account, you could earn $100 in interest each year for a 1-percent rate as opposed to only $1 in an account with 0.01 percent yield.
The gain you get from savings accounts with slightly higher interest rates could bring you that new laptop or TV in a year or two with the added interest. You could use a savings account for the little things you want in a short time or keep it as emergency money if something unexpected comes up. Check with your bank for better rates on different accounts they offer or search for online rates.
- CNN Money: Savings Accounts with the Highest Yields
- GoBankingRates.com: What Is the Average Savings Account Interest Rate?
- MyBankTracker: Find the Highest Savings Rates Available
- Ally: Three Things the Average Savings Account Interest Rate Will Tell You
- Forbes: Online Banks Offer Best Savings Account Rates for 2013
- Bankrate: Simple Savings Calculator
Jerry Shaw writes for Spice Marketing and LinkBlaze Marketing. His articles have appeared in Gannett and American Media Inc. publications. He is the author of "The Complete Guide to Trust and Estate Management" from Atlantic Publishing.